This stock has been an amazing performer over the last few years, rising from below $20 in the depths of the recession to a recent level of over $100. I normally wouldn’t consider a stock with this kind of increase a safe play but this is an exception. Demographics and its products point to rising prices ahead for this company. Say hello to Boston Beer (SAM).
Bottoms Up
The company sells low alcohol beverages primarily in the United States, Canada, Europe, Israel, the Caribbean, the Pacific Rim, and Mexico. The company markets approximately 20 beers under the Sam Adams brand names.
Shareholders have been anything but hungover after enjoying many months of stellar gains. Boston Beer said 2011 would be robust in mid December due to strong shipment volumes and raised earnings forecasts. At the time, the company said that earnings for 2011 would come in at $3.95 per share which was well above the $3.53 that analysts were expecting at the time. That kind of increase in guidance suggests that the recent earnings momentum has a long ways to go.
The stock got crushed during The Great Recession as consumers were unwilling to open their wallets for higher-costing beers, but that trend is certainly reversing. As the economy improves and consumers feel more flush, they will be more likely to pay up for specialty beers like those made by Boston Beer. Clearly this is happening now judging by management’s guidance. I believe that consumers will stick with buying the company’s products as long as the economy doesn’t fall off a cliff, which is why I consider this a relatively safe stock.
I think the company can earn at least $4 per share in 2011, which still doesn’t make this a cheap stock, but one in which investors will pay up for in my opinion. Given the strong momentum in earnings, I believe that investors will value this growth higher than that of other slower growing companies and bid the stock up to about $110 in the next 12-18 months.
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