Article by Investment U
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In focus today: Chinese liquor and African beer, a big “I told you so” on the price of natural gas with more to come, and a SITFA courtesy of a Wall Street insider.
China consumed 550 million cases of liquor last year and India 150 million cases. And their taste for the good stuff is growing in leaps and bounds as the more affluent from both countries come back from trips to the West with a taste for good liquor.
According to Thomas Russo of Gardner, Russo and Gardner, who manages about $5 billion in assets (most of it in European companies with big exposure outside Europe), the names to play to get in on this enormous market are Ricard Pernod, Diageo and Brown Foreman.
Russo said in a Barron’s article last week that Ricard Pernod has less than 1% of the Chinese market and it accounts for 15% of their earnings.
All three companies have been investing heavily in both China and India to capture a share of what promises to be a huge growth story for some time.
Brown Foremen is all about Jack Daniels. According to Russo, 25 years ago Jack Daniels sold five million cases a year in the U.S. Now it still sells five million is the U.S. and six millions cases outside of the U.S.
And if that isn’t big enough, the beer market in Sub-Saharan Africa dwarfs liquor in Asia.
Africa drinks, I hope you’re sitting down, 400 million barrels of beer a year, 400 million! Yet, only 90 million is bottled, the rest is home made.
The names Russo likes there are Heineken and SABMiller. Heineken makes 25% of its profits in Africa and SAB makes 35% of its profits there, as well. Both companies according to Russo have lots of room to grow. 310 million barrels a year of growth!
Natural Gas Runs Like Crazy
Natural gas was up 17% in one week and it looks like the excess supply in the system is finally beginning to evaporate and prices are in for a run to the $4-to-$6 area this year.
Last week natural gas numbers showed a smaller-than-expected increase in inventories, and that ignited a buying frenzy.
Pushing the run-up is the expectation that more utilities will switch to natural gas from coal and, with electric demand expected to rise 20% this year, gas futures are in play.
The number of producing gas wells has been reduced by almost a third this year alone and the expectation of a hot summer, which will add to demand for cooling and push the demand for electricity even higher, will drive prices even more.
Adding to the shift in gas sentiment is the news that natural gas could see broader use as a transportation fuel. One of the biggest roadblocks to its use in cars has been tank storage. Natural gas needs larger and heavier tanks in cars, and that poses all kinds of problems.
3M and CHK are working together to develop a natural gas storage tank for cars that will be 10% to 20% lighter than current tanks and will hold 10% to 20% more gas.
And the University of Missouri is working on a tank solution that’s made out of corncobs turned into charcoal briquettes. Early tests have been very positive.
Of course, if more gas vehicles were sold the cost would naturally come down for what has been a significantly more expensive vehicle than the conventional gasoline powered car.
All in all, the natural gas story is developing exactly as industry experts have predicted and it promises to be a huge long-term growth story.
You need to be in on this one for the long haul.
Finally, the SITFA
This week it comes to us from MarketWatch’s David Weidner, who after 15 years of covering Wall Street is leaving. His last article was called, So Long, Suckers! A real slap in the face to most of Wall Street
The final article was a collection of lessons learned while covering the money business. Some are worth noting.
First, a stock is only worth what someone is willing to pay for it.
Forget PEs, revenue, earnings and all the rest, especially technical analysis; it doesn’t work. If someone paid $10 for a stock, it’s worth $10 and no more. Ask the FB investors who got in on the IPO.
Merger and acquisitions may be necessary evils of our modern business world, but they almost never pan out. Too often they cost jobs, efficiency, eliminate competition, disrupt business and make customers miserable. Halleluiah!
Finally, on the positive side, Wall Street may be corrupt and it may reward thieves, but it’s vital to the success of this country. Every entrepreneurial effort in the history of this country and practically anything of any worth is here because someone was willing to take a risk with their money and they did it and are continuing to do it on Wall Street.
How true! But it does seem like there are more thieves there than usual.
In addition to being funny at times, this is really a worthwhile, quick read and I highly recommend it.
Article by Investment U
