Investors are paying attention to the beer industry more than ever before – and for good reason.
Not only do they make a product that isn’t going out of style anytime soon, they’re jumping right into the $10 billion cannabis industry.
And what just flashed on my radar is a unique opportunity to own a little-known, publicly traded beer company that could pop 50% this year. Possibly even sooner.
The fast-growing craft beer industry continues to show strong growth and demand in an increasingly competitive landscape.
And because of a recent pullback in the stock market, the table is being set for a wave of merger and acquisition activity in the coming year.
Finding one of these takeover targets before they’re bought out is one of the easiest ways to bag a double-digit profit in a matter of days. As soon as news breaks of a pending acquisition, the share price could surge overnight.
Today, we’ll show you one craft beer giant that is very attractive as a takeover target in 2019…
Welcome to the Craft Beer Revolution
Small independent brewers have exploded across the country.
Bart Watson, the chief economist at the Brewers Association (a trade group representing the industry), told the U.S. Census in October 2018 that shifting consumer taste has bolstered the craft industry this decade.
Watson also cited a movement to support local businesses as opposed to multinational brewing operations.
Between 2012 and 2016, the number of craft breweries exploded from 880 to 2,802.
And that figure doesn’t include the many restaurants and bars that brew their own beer.
If you include brewpubs, microbreweries, and regional brewers, the figure increased from 2,898 in 2013 to 5,424 by 2016.
Of course, as craft beers became more popular, the expanding, successful ones became takeover targets for the world’s top manufacturers.
For example, in 2017, total beer volume fell by 1% in the United States, while craft beer volume increased by 5%.
That’s why larger brewers started snatching up smaller players.
Heineken bought out Lagunitas in 2017, and Sapporo purchased Anchor Steam that same year.
But because it has the money to spend, the biggest buyer of craft brewers has been Anheuser-Busch InBev SA/NV (NYSE: BUD). Since 2016, it has snapped up 10 different companies in the space, including Breckenridge Brewing, Devil’s Backbone, Four Peaks, and Wicked Weed Brewing.
While dealmaking has slowed down in recent months, many companies are still on the block and are trading at attractive prices.
And thanks to the Money Morning Stock VQScore™, I found a stock that not only is a potential takeover candidate, but it’s a screaming buy right now…
This Is the Next Big Profit Opportunity in the Craft Beer Space
Craft Beer Alliance (NASDAQ: BREW) is a Portland-based brewer made up of seven major regional brewers that include Redhook Ale, Kona Brewing, and Cisco Brewers.
The seventh largest craft beer brewer in the United States has generated a lot of interest out of the big players in the space.
AB InBev already owns 32.2% of BREW.
The two companies are so close that the Brewers Association no longer recognizes Craft Beer Alliance as a craft beer manufacturer (the reason is that AB InBev owns more than 25% of the company).
But other factors make the two firms inseparable.
AB InBev can limit Craft Beer’s ability to sell assets or issue new stock.
It can stop CBA from selling its beer through any non-approved distribution network.
It has the power to appoint two directors to CBA’s board of directors.
And it brews some of CBA’s beer through its manufacturing network after the craft brewer moved production out of its Tennessee facilities and into AB InBev breweries.
The companies are so intertwined that a deal that completely brings CBA under AB InBev’s tent makes financial sense.
And this could be the year that AB InBev makes a move and snaps up a majority stake given the downturn in the market.
BREW shares are off 28% from their 52-week high, giving AB InBev a chance to buy out the company at a steep discount.
But there’s one more reason why we love this stock right now.
Craft Beer Alliance has a Money Morning VQScore of 4, the highest possible score from our rating system.
This figure signals that Craft Beer Alliance – while an attractive takeover target – is on the verge of a significant breakout.
According to one analyst’s estimate on FactSet, BREW shares have a one-year price target of $20.50, a figure that represents a potential upside of 50%.
But that could be too conservative of an estimate for the profit potential from Craft Beer.
I wouldn’t be surprised if this is the year that InBev either buys up remaining shares or another company steps in and bids for the remaining shares to force InBev’s hand, creating a nice premium from where the stock is trading today.
— Garrett Baldwin
Source: Money Morning