Brazil’s AmBev Shaping Up As Potential Leader

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The market’s uptrend is still quite new, and leaders from a host of industry groups may yet emerge. But so far, beverage makers are taking the lead in Latin America.

This column on Wednesday mentioned some of the highest-rated stocks from Latin America. Two names appeared in that search.

From Mexico, Fomento Economico Mexicano (FMX), or Fomex, is Latin America’s largest nonalcoholic beverage company.

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From Brazil, Companhia de Bebidas das Americas (ABV), or AmBev, is Latin America’s biggest brewery. The company also distributes Gatorade in a country that goes wild over sports.

Leader In Latin America

AmBev dominates Brazil’s beer market with a 68% share. It also delivers several beer brands to 12 other Latin American markets.

Global beverage giant Anheuser-Busch InBev (BUD) bought a majority stake in AmBev seven years ago. AmBev now distributes Budweiser and Stella Artois in Canada, where it holds a 42% market share. AmBev also is the regional PepsiCo distributor.

Scrutiny of AmBev’s chart shows a good — but not perfect — base.

AmBev is now in the eighth week of a cup-shaped base with a potential buy point at 34.78.

So what’s wrong with the base? The right side is a bit steep, especially compared with the more evenly shaped left-side decline.

Accumulation and distribution are about evenly matched within the base, which has seen a large amount of volume. The base is V-shaped, which is poor form. It does reflect the market’s volatility to some extent, though.

So what’s right with AmBev’s chart? Its base is a second-stage structure. Third- and fourth-stage bases reflect an older uptrend and are more prone to failure than first- or second-stage bases.

Its price action has been less volatile than the corrections of many other leading stocks.

Strong Earnings

AmBev posted earnings gains in the past four quarters ranging from 32% to 55%.

Estimates for the current period predict a rise of just 17%. That would be the softest such gain in five quarters.

Sales rose just 18% in the second quarter, the most recent report. That’s lower than you’d want to see in a market leader.

But AmBev has accelerated its sales growth for three straight quarters. Taken together, AmBev’s sales picture may be seen as a positive.

Finally, AmBev boasts the highest annual pretax margin — 39.2% — in its industry group.

Its 32.8% return on equity is second only to China New Borun (BORN), a Chinese small cap with its own set of problems.

AmBev is in IBD’s alcoholic beverages industry group. It ranked 62nd out of 197 groups in Thursday’s IBD, but the group has been climbing. It was 94th three weeks ago and 132nd six weeks ago.