Sam Adams takes up 1/6th of the Beer Rack space at the Sugarhouse state liquor store in Utah. Nice rack for only 1% market share!
In 1999 when I was practically living at the bars (more specifically, Salt Lake’s Port-O-Call (R.I.P.)), I would always order a Red Bull and vodka. Energy drinks were the latest fad, and you couldn’t go anywhere without seeing a Red Bull or Monster drink on the shelves or in the hands of a college kid. The universe was screaming “Buy energy drinks!!” and due to my most recent obsession with tech stocks, I ignored the maker of Monster Energy drinks, Hansen Natural (HANS). I missed a gain of 6,000%, a gain dreams are made of. Had I just invested one month of my bar tab ($1,000), I would be looking at $61,000 right now.
Watch for trends everywhere. When the universe screams, listen!
I missed the early years of craft brewery revolution too. 840 micro breweries started in the USA since 1980, 470 still exist. I noticed an increase of craft beers at parties but didn’t notice in an investing sense. Then, the universe screamed to me again, and this happened.
1) Motley Fool’s Stock Advisor David Gardner picked Boston Beer as their stock for June.
2) A few days later, while at the gym, I stumbled across “Beer Wars” on Netflix and watched it. Boston Beer’s founder Jim Koch was interviewed and made me realize “I’m living through the rebirth of the microbrew revolution.”
3) My brother-in-law brought over Sam Adam’s Boston Lager to dinner. It’s his favorite beer.
Even though this revolution is well on its way (and has had a lot of casualties), I would rather jump on a moving train that hasn’t reached its destination than miss the entire ride.
As I type this, I’m drinking Samuel Adam’s Coastal Wheat brew (I’m out of my favorite Blackberry Witbier) to celebrate our starting position in SAM for $66.67 a share. You can see our entire portfolio here.
Here’s is why I think the universe is right and why I love Boston Beer (the company):
1) Motley Fool’s Tom Gardner says insider ownership is the most important factor in the success of a company. I completely agree. When a company is a person’s baby instead of a paycheck, the company will probably grow to be a grandpa and outlive the father. Common stock holders of SAM have no voting rights! Only class B shareholders do. Jim Koch owns 100% of the class B shares and therefore controls most the company. He owns 33% of the total company. Mr. Koch is a Harvard educated lawyer and MBA that gave up his consulting job to follow his passion.
2) Boston Beer is younger than me, only 26 years old. It went public the year I graduated high school, 1995, and currently only employs 780 people. Production has only doubled since going public, from 1 million barrels to 2 million barrels. Even though SAM is the largest indie brewery in America they only make up 1% of every beer sold (the two majors Miller-Coors and AB make up 94% of sales). Craft brewers have been growing for five years straight since 2004. Plenty of room for growth! Corporations are people. They live and die just like people. Buy the babies, sell the grandparents.
3) SAM’s Beers have won 1,424 awards in the past 10 years. First American beer sold in Germany (1985) and they invented the “born on date” in 1988. Named supplier of the year by Outback, TGI, and Darden.
4) Like Coke’s secret recipe, SAM has a proprietary, protected strains of yeast it uses. SAM has a wide variety of great drinks including: Samuel Adams beers, Twisted Tea, Longshot contest beers, and Hardcore Cider. Also teamed up with the world’s oldest brewery, Germany’s Weihenstephan (founded in 1040 AD) and has a new beer (late 2010) which follows the 1516 beer purity law, the Reinheitsgebot.
5) They treat their employees and community right. For over 3 years, they have loaned $7,000 (on average) to over 38 New England low income small business owners in the food and beverage industry during the recession via the American Dream Program. They created an employee weight loss program where employees lost a combined weight of 1 ton. Through the Long Shot contest, Sam Adams fans/employees brew their own beers for inclusion in the yearly Long Shot six-pack combo.
Here’s is why I think the universe is right and why I love Boston Beer (the stock):
1) SAM stock has only doubled since its 1995 IPO and is currently valued at 950 million. Though savvy investors who bought post IPO (late 90s) could be sitting on a 600% gain, there is still a lot of upside here. Anheuser-Busch (BUD) for example is valued at 87 billion, more than 87 times more than SAM. Will SAM be the next BUD? If not, even getting a quarter of the way there will lead to huge gains.
2) SAM repurchased 211,420 shares of its own stock in 2008 and 2009 at the excellent average price of $33! Well done Jim!
3) 147 million in property assets. I love companies that own lots of land in desirable areas.
4) 39 million in cash on the balance sheet and zero debt
5) Increased their cash 5 fold from 2008 to 2009.
6) From 2005 to 2009 they almost doubled their sales and their net income!
7) Stock trades only 16 times trailing free cash flow and has a 14% annual growth rate
8) Generates almost 25% return on invested capital
9) Stock has had a nice 7% pull back in the past 5 days. Normally I wouldn’t buy the day earnings will be announced but I think the “sell the news” may already be priced into the stock. SAM completely missed yesterdays major rally (indexes up 2%+ on average)
10) Forward PE of 21 and a peg of 1.73. Not cheap, but still a fair price for it’s growth.
Though this David might not be able to take down the two Goliaths that control 92% of the beer industry, I’m betting that SAM will easily be able to beat its current 1% market share which will lead to major profits. Cheers!
Monty
Greedy When Fearful 
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