Canadian Capitalist

Last month, I bought Anheuser-Busch (NYSE: BUD) in my retirement account. My primary reason for buying was that BUD traded at the low end of its historical valuation for a fine company that has consistently increased its sales, earnings and dividends. Yesterday, the stock popped 7% on the company’s terse announcement that Warren Buffet has bought a significant stake in the company.

While, it doesn’t hurt to have the world’s greatest investor in your corner, BUD faces significant short-term challenges: volume growth is anaemic, the company issued a recent profit warning, it is facing competition from a reinvigorated SAB-Miller and consumer preferences for other alcoholic drinks. In its favour, the company is a mighty marketing and profit machine and will be a significant player in the fragmented global beer industry. A-B is a growing presence in China that could drive its long-term growth.

Long-term investors will be pleased with A-B’s prospects, while Wall Street’s focus on the company’s short-term performance will likely depress the stock. Just a day after the Buffett announcement, two brokerages have downgraded the stock, citing near-term challenges.

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