It's a difficult task to pick a stock that can be held for an entire century. It's hard enough picking a stock to hold for a few decades, but far more sobering to realize that few enterprises last anywhere near 100 years. On the other hand, there are a few companies on the Big Board today that had their beginnings over 100 years ago, making their shareholders billions upon billions in profits along the way. But what product, what business model, what company can we reliably say is a good bet to thrive well into the 2100s?
I believe I have the answer. But first, we need to take a trip back in time: five thousand years into the past.
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Recently, archaeologists unearthed a 5,000-year-old beer recipe in China. This find, announced in May, certainly gives credence to the idea that one of the first things civilizations make, alongside rules and canals, is beer. Indeed, the find has led archaeologists to posit that barley was used for beer brewing before it was used as a food source -- that is, it helped build civilization. Clearly there's something to this brewing thing, and I'm betting this 5,000-year-old trend is going to continue well into the next century.
Image Source: Getty.
Thanks to mankind's love of a cold one on a hot day, and some savvy market choices recently made by an acquisitive management team, my pick for a century-long holding -- nay, the perfect company to hold for my great-great-grandchildren's benefit -- is none other than Anheuser-Busch InBev SA. Here's why.
Positioning for a century of growth
Last year, AB InBev made a bold move by offering to purchase the world's No. 2 brewer SABMiller. It all began in September 2016, when rumors began swirling of a potential deal. After weeks of haggling, it was formally announced on Oct. 12 that the two parties had come to terms, in what would be a $107 billion deal for AB InBev to acquire SABMiller. The merger, which combines parts of the world's No. 1 and No. 2 brewers, will create a Goliath with some 28.4% of the global beer market. The new AB InBev will have a major presence not only in the developed world but also in the developing world -- and that's why it is just the stock to own until 2116.
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It's difficult for Americans to appreciate just how dominant AB InBev will be overseas once this merger is consummated. Stateside, AB InBev owns brands such as Budweiser, Bud Light, Stella Artois, and Corona. While these brands are obviously available everywhere, they are not monopolistic; consumers can just as readily find a six-pack of Coors or Miller High Life. In addition, in recent decades, Americans have benefited from a robust and fast-growing craft-brew industry, with Boston Beer Co. as its standard-bearer. The situation overseas, however, is drastically different.
To paint the picture, I took the 30 largest beer markets in the world as of 2014 (as calculated by the National Beer Wholesalers Association, using the most up-to-date data possible), and narrowed it down to the nine nations where AB InBev has very little presence but SAB Miller is dominant. A quick glance at the list shows that AB InBev shareholders stand to gain a great deal:
|Volume (US Barrels)||AB Inbev 2014 Market Share||SAB Miller 2014 Market Share||2015 Population (mil.)||GDP per Capita (2015)||Est. 2015 Growth|
|2. South Africa||28.75||N/A||82%||53.68||$13,200||1.30%|
|5. Czech Republic||13.17||0.8%||43.5%||10.64||$31,600||4.20%|
The total population of the countries listed above is 234 million. They averaged a gross domestic product per capita in 2015 of $25,522 and experienced average economic growth of 2.68% that same year (a year that was tough for commodity-based economies, several of which are listed above). With combined post-merger market shares ranging from 34.7% to a very healthy 99.2%, AB InBev's share in these markets will average around 65%.
Essentially, in exchange for half ownership of U.S.-based Miller Coors, which at last count has about 14% of the U.S. market, and half of China's CR Snow, which has 22% of the Chinese beer market -- both markets which are far more competitive than those listed above -- AB InBev gains near-monopolistic control of nine emerging markets that are almost sure to offer higher growth and greater profitability, especially when compared to the U.S. It should also be noted that CR Snow was never particularly profitable: SAB Miller's stake in it only fetched $1.6 billion, despite the fact that CR Snow is the world's largest beer brewer by volume.
Sounds good, right? It gets even better.
In addition to operating practically competition-free in the markets listed above, AB InBev will also continue to be a (if not the) dominant player in practically every other beer market you can think of. These include Brazil (64% market share, population 200 million), Argentina (79% market share, population 41.5 million), Colombia (98% market share, population 48 million), South Korea (56% market share, population 50 million), Mexico (51% market share, population 60.5 million), the United States (45% market share, population 320 million), and AB InBev's own China operations (14% market share, population 1.35 billion).
In a world with antitrust laws, this is just about as good as it gets.
The long, long term
I want to tackle the financial portion of my case in two parts: traditional financial metrics, and the more speculative task of future profitability. Obviously the latter is tricky, but that's what investing is all about. First, a brief overview of AB InBev and SAB Miller's historic financial performance:
|5-Year Avg. Return on Equity||5-Year EPS Growth Rate||Forward P/E||5-Year EPS Estimated Growth|
Data source: S&P Capital IQ.
If we conclude anything from the above data, it's that these mammoth brewing organizations have plenty of earnings growth ahead, fueled by huge demographic trends. The future AB InBev's strong competitive position, coupled with over $1.85 billion in estimated annual cost savings, builds a strong case for a long runway of profitability -- but is it enough to make it a stock to own for 100 years?
The thing with investing for the ultra-long term is that, as we have seen time and time again, fancy spreadsheets that project profits well into the future are basically pointless. The best types of investments are those in companies that have, in Warren Buffett parlance, a durable competitive advantage. Mr. Buffett would be the first to tell anyone who will listen that, despite his mathematically inclined mind, he has never once done an analysis of discounted cash flow or long-term earnings on any of his investments. To pass as an investment, the rational needs to beglaringlyobvious.
You might be thinking that Google, Apple, and Amazon.com are great contenders as century-long holdings, but I would caution against this claim. These are exceptional organizations, to be sure, and I certainly wouldn't bet against Google being around in 100 years -- but I also know what relentless competition can do to the strongest of companies. Don't forget that in 1973 Sears built the world's tallest building in Chicago, to show off its status as the world's largest retailer. Look how that turned out.
Foolish bottom line
The companies that last the longest, that generate profits for their owners decade after decade despite World Wars and Great Depressions, are often simple consumer-facing product brands. Think Coca-Cola, Gillette (now part of Procter & Gamble), Clorox, and of course, Budweiser.
Who knows what the world will be like in 100 years: Will we have a thriving colony on Mars, as Tesla's Elon Musk desires? Will we be mining asteroids and spending our leisure time in virtual-reality simulations? Your guess is as good as mine. But humans have been drinking beer for thousands of years, and I think it's safe to say that they'll probably be drinking it in one hundred more. And there AB InBev will be: after a long day of asteroid mining near Saturn, providing citizens of the worlds a cold one.
The article 1 Stock to Own for the Next Century originally appeared on Fool.com.
Sean O'Reilly has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon.com, Apple, Boston Beer, and Tesla Motors. The Motley Fool has the following options: long January 2018 $90 calls on Apple and short January 2018 $95 calls on Apple. The Motley Fool recommends Anheuser-Busch InBev NV, Coca-Cola, and Procter and Gamble. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors.
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