Buying Beam May Drive You to Drink

NEW YORK (TheStreet) --The stock market has been falling like a drunken sailor, making it a good time to look at two big names in the business of booze, Beam (BEAM) and Diageo (DEO).

Friday, it was DEO that took it on the chin, falling about 2.4% while BEAM, which trades at a much higher forward (one-year) PE ratio, was flat on a day when the S&P 500 fell below the 1,800 level and the Dow cratered below 16,000. BEAM trades with a forward PE of about 30 while DEO's is much lower at 17.

Currently, DEO is trading around $127 and is down 4% for the year to date. Beam is trading around $84 and is up 23% for the year to date.

Beam's product line includes Jim Beam Bourbon, Courvoisier Cognac, Canadian Club Whisky and Teachers Scotch, among many others. BEAM was formerly Fortune Brands and changed its name to Beam Inc. in October 2011.

On Jan. 22 Beam declared a regular dividend of 22.5 cents per share on the company's common stock, payable in cash on March 3, 2014 to stockholders of record at the close of business on Feb. 6. Through a company-wide focus on innovation in both product and marketing, Beam has grown to become the fourth largest premium spirits company on the planet. For more information, see the company's Web site.

Here's a one-year price chart that has an impressive spike higher just before the middle of this month.

BEAM ChartBEAM data by YCharts

What launched the price of BEAM's stock through the roof? On Jan. 13, Suntory Holdings agreed to buy Beam for $16 billion including the assumption of BEAM's debt. Not all shareholders are thrilled about this transaction, however.

On Jan. 22 the NECA-IBEW Pension Trust Fund filed a lawsuit in Circuit Court of Cook County, Illinois. According to Bloomberg, "...the proposed transaction is the product of a 'hopefully flawed process'"  designed to ensure the sale on Beam to Suntory "on terms preferential to defendants and other Beam insiders."

That's referring to activist investor Bill Ackman, whose Pershing Square Capital Management LP holds about 13% of the shares of Beam. Ackman and Pershing Square will apparently receive more than $1.73 billion if the takeover closes.

Why would this pension fund not want the deal to close?

"In the last six months alone, Ackman and Pershing Square have lost approximately $1 billion on very public investments in J.C. Penney (JCP) and Herbalife (HLF) and now Ackman seeks liquidity for his illiquid Beam holdings," the fund said in the suit. "The proposed acquisition offers that liquidity, and if it closes, Ackman will receive over $1.73 billion from the deal."

The lawsuit is seeking class-action status, and a BEAM spokesperson said that the "suit is baseless and without merit."

It's beyond many investors' comfort level to hold a stock that may be mired down in a long, nasty legal proceeding. This is especially true when the object of the lawsuit is the main driver of why the stock skyrocketed on the news.

That's why it might make sense to look at London-based Diageo. DEO offers a greater variety of beverages and thus more ways to make money for shareholders. Some of its familiar brands are Johnnie Walker Scotch whisky, Bushmills Irish whiskey and Smirnoff vodka.

Shareholders who buy shares of DEO below $127 will enjoy a dividend yield-to-price of 3%. On Thursday January 30th the company will report its latest quarterly earnings. The following one-year chart shows us how Diageo's stock has performed and may give us some clues as to what's ahead.

DEO Chart
data by YCharts

It wouldn't surprise this analyst to see shares test the $125 level and revisit the Dec. 13, 2013, intraday low of $123. Then I look for a one-year upside price target of around $145 to $150-a share, especially if Diageo's latest press release predicting that 2014 will see "The Renaissance of Rum" comes to pass.

If the trend for rum cocktails and the thirst for spirited drinks keeps rising, the world's leading premium drinks business should benefit all the way to its bottom line.

Meanwhile, if you own shares of BEAM, things may be uncertain in the short term, but if a lawsuit claims that fetching $84-a-share from an acquirer isn't good enough, chances are the downside risk for BEAM's investors is most likely minimal. Either way, it's "bottoms up" and positive expectations.

At the time of publication the author had no positions in the companies mentioned in this article.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.


Marc Courtenay is the founder and owner of Advanced Investor Technologies, LLC, as well as the publisher and editor of

Courtenay holds a Master's of Science degree in Psychology from California Polytechnic State University, and is a former senior vice-president of Investments for two major brokerage firms. He's been a fiercely independent investment "investigator" and a consulting contributor to the investment publishing world for over 30 years. In addition to his role as an investment publisher and analyst, he serves as a marketing consultant to the investment media industries.

In his role as a financial writer and editor, he specializes in unique investment strategies, growth with income stocks, overlooked investment themes, tax-advantaged themes, risk management, technologies to capture gains and reduce losses, real estate related opportunities,effective wealth preservation techniques, and the use of ETFs for diversification and asset allocation. He also follows and frequently writes about technology, health sciences, energy and resource companies. Because of his training and background in Clinical Counseling and Psychology, he enjoys writing about investor behavior, the herd mentality, how to turn investment mistakes into investment breakthroughs and the stock market's behavioral trends and patterns.

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