Are Boston Beer and Mellanox Worth Every Penny?
Aug 1st 2012 10:44AM
Updated Aug 1st 2012 10:48AM
Some investors think fishing at the shallow end of the stock pond among penny stocks is where they'll land the biggest returns. While a move of just a few pennies might net you a whopper, it's more likely to have you falling hook, line, and sinker into the weeds of fraud and manipulation.
Instead, try casting your line to the other end of the price spectrum, among stocks that trade north of $100 a share. These three-digit stocks (and sometimes they trade for four, five, and six digits) can oftentimes have you telling a whale of a tale of multibagger returns.
But regardless of how much it costs, it always comes down to whether the business is well-run. We'll check in with the smart set at Motley Fool CAPS to see which high-priced honeys they think are selling something fishy, and which ones they believe ought to be mounted over the mantle.
The highlight of last quarter for Boston Beer (NYS: SAM) was the strength of its sales of hard tea and hard cider. Sold under the Twisted Tea and Angry Orchard brands, respectively, they helped push depletions 10% higher. Analysts say they're propelling the brewer even higher now.
According to a CNBC report, the ciders in particular are surging and now account for 7% of Boston Beer's portfolio. This is significant because the analysts were already thinking Angry Orchard was doing well when it was believed it was at just 1% of the portfolio, but they realized they had misclassified the sales and after correcting for the mistake the uptake was even stronger than previously thought. Now, instead of just 9% of distribution, they think the brand accounts for 21% of it and should allow Boston Beer to capture 22% of the hard cider market. That's well above the 5% to 15% share Boston Beer itself was hoping to capture.
The one risk I see is the lagging growth of its core Samuel Adams brand. I worry that with lots of craft brews to choose from as the segment grows, Sam gets a bit lost in the shuffle and Boston Beer becomes reliant on what may turn out to be a niche or fad product, i.e., hard ciders and teas.
CAPS All-Star lennysims believes the market has valued the brewer based on its ability to beat analyst expectations, but with shares at around $110 and "Valued precariously at 24 times forward earnings, 7 times book value, and not currently paying a dividend, unlike many of its peers, there are simply too many risks built into its stock at these levels."
Let me know in the comments section below or on Boston Beer CAPS page if you agree the stock is frothy.
What's the big idea?
A couple of weeks ago I discussed how Equinix would be benefiting from the biggest trend in computing: "big data." According to the market analysts at IDC, it will grow from a $3 billion industry in 2010 to almost $17 billion by 2015, or a 40% compounded annual growth rate. IBM says we're overflowing with data, creating 2.5 quintillion bytes of data every single day. Operating 100 network-neutral data centers, Equinix will help business figure how best to store, manage, and analyze all the data streaming its way.
Yet when confronted with this tsunami of data, companies also need to deliver improved application performance, ensure its scalability and reliability, and do it all within economic and power constraints as it jumps between servers, storage systems, and various embedded systems. That's where Mellanox Technologies (NAS: MLNX) comes in, producing high-performance interconnect products that improve the efficient transmission of data at lower cost.
So critical is this fabless semiconductor's business that both IBM and Oracle (NAS: ORCL) are said to be ready to bid upward of $6 billion for its operations. The former is already a leader in the space, and snatching Mellanox would cement that position, making the $150-per-share rumored price well worth it. With nothing firmer to go on just yet, however, the stock remains at $107 a share.
While Mellanox seems to prefer to remain an independent company, with Intel (NAS: INTC) buying QLogic's (NAS: QLGC) InfiniBand switched fabric communications portfolio earlier this year it may find it more advantageous to go head-to-head with it as part of an enterprise with the financial wherewithal to do so.
Use the comments box below to let me know what price you think would change management's mind, and let me know if you feel "big data" is just another bubble that will soon burst.
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The article Are Boston Beer and Mellanox Worth Every Penny? originally appeared on Fool.com.Fool contributor Rich Duprey owns shares of Oracle and Intel, but he holds no other position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Intel, International Business Machines, Oracle, and Boston Beer. Motley Fool newsletter services have recommended buying shares of Intel and Boston Beer. Motley Fool newsletter services have recommended creating a synthetic long position in International Business Machines. The Motley Fool has a disclosure policy . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days .
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