With summer just around the corner, the appeal of a cold beer on the patio becomes ever more enticing. As we move into warmer weather for many states, it seems natural to think that the consumption of beer will increase during the summer -- after all, it's a refreshing staple of the backyard barbecue or get-together on the patio.
From an investing perspective, there's an important question to pose: Is it better to drink the beer or buy the stock? Below is my analysis of three beer stocks and my best pick to trade. As always, my commentary is aimed at both novice traders and active investors.
The iconic brand Budweiser
(NYSE:BUD) produces many more brands beyond Budweiser. Budweiser's ownership extends to different brands such as Michelob, Rolling Rock, and Stella Artois, appealing to a wide range of tastes for beer consumers. The popularity of these beer brands is well known -- accordingly, the stock price has most recently been on a tear. Morningstar reported that BUD had returns of 45.46% in 2012 and 24.72% in 2013, compared to industry returns at 44% and 10%, respectively.
But as a trader begins to look deeper at BUD's charts, a different picture emerges, leaving me more cautious about trading it.The daily chart illustrates the wide movements both up and down this past year, with lows of $94 and highs of $110 in less than four months' time. While BUD is in a strong uptrend on the daily chart, with price staying above the 21 EMA, an investor can't forget to consider that BUD has a history of breaking through the moving averages on many occasions. The choppy behavior of price ,especially when it doesn't respect the moving I prefer to enjoy the beverage on the patio rather than own BUD shares.
(NYSE:DEO) is a strong offering in both North America and Europe with brands such as Guinness, Harp, Kilkenny, and Red Stripe. These beer brands connect the consumer with not only good beer, but also dreams and memories of travel abroad. This stock has reported strong results in both 2012 and 2013, which would leave investors to think that this stock might be a good investment. According to Morningstar, DEO had a return of 36.53% in 2012 and 16.16% in 2013, but as I look at the daily charts, I'm seeing a nastier picture for a trend trader such as myself.
This stock's daily chart has suffered from wide price swings, moving from lows of $115 up to $127 in one month, then moving back down to $118 and back up to $126 in March. It's a good example of a chart that historically moves sideways. The tendency of this consolidation pattern rather than a trend to the long or short side provides difficult points of entry for a lower-risk trade. Currently DEO is in a small uptrend with support at $124, but it will have resistance at the $127 level, then again at the $128 level. Until price breaks above the $128 level and confirms it's out of its consolidation pattern, I'll pass on DEO in favor of drinking a nice cold Kilkenny.
So the question remains: Which beer stock, in my opinion, offers the best risk-reward ratio?
My investment dollar would be best spent on Molson Coors
(NYSE:TAP). As a Canadian, I have to disclose my affinity for the iconic Canadian company, which produces popular brands -- including Molson, Miller, Coors, and Heineken -- that are all staples at many local pubs. Of the three beer stocks I reviewed, TAP looks like the best opportunity to trade. Currently its price is trading at $63 and is staying above the 8, 13, and 21 exponential moving averages on the daily chart.
The combination of its famous brands and its positive behavior on the charts looks to me like an opportunity to buy. My specific options strategy would be an "in the money" call option. I'll be looking to buy TAP on a retracement back around $62. My trade is based on the assumption that TAP has continued strength to the long side. With price moving from $51 in February to $63 currently, I like the idea of taking advantage of the momentum we've seen and would expect continued strength, especially moving into the summer months.
Sarah Potter is the founder of SheCanTrade.com, an education and community portal for active investors of all experience levels. Sarah's book How You Can Trade Like a Pro is a straightforward guide to trading options, futures, and ETFs. Sarah's YouTube channel has a growing library of videos on trading strategies, market analysis, and live trading sessions.
No positions in stocks mentioned.