More drinkers of low-priced beer plus a relatively cheap stock could mean a party brewing for this beer giant. By Bob Frick, Senior Editor November 15, 2006 If I subscribed to the adage "invest in what you like," I'd be buying shares in Boston Beer. The maker of Samuel Adams Boston Lager is riding the wave of craft brews that continue to steal sales from the biggest U.S. brewers, including market leader Anheuser-Busch. The truth is, investing in what you like isn't always the best strategy. Sometimes what makes the most sense is to invest in what's cheap. And I'm not talking about $5.24 for a six-pack of Bud versus $7.99 for one of Sam Adams at my local supermarket. At its November 15 close of $46.92, Anheuser-Busch (symbol BUD) trades at 17 times estimated 2007 earnings of $2.80 a share, according to Thomson First Call. By contrast, Boston Beer (SAM), at $35.72, sells for 26 times estimated '07 profits of $1.40 a share. True, Anheuser-Busch's sales have been torpid the past few years while Boston Beer has been growing quickly. Also, Anheuser-Busch's stock has done little, basically waffling between $40 and $50 a share the past two years -- and there's nothing worse than flat Bud. But a research report from Zach's Equity Research issued recently makes a compelling case that the stock is poised to break out, much like the scene in Animal House in which the keg flew out of a Delta House window. I use the words "much like," because a key driver of beer consumption is the "first-time drinker demographic," as Zack's analyst Steven Ralston puts it. That swath of males 21 to 28 years old makes up 13% of the population, but drinks 27% of the beer. And it's a growing group. Expect four million new legal beer guzzlers between 2003 and 2010, which translates to 1% to 1.5% more beer drunk per year. That might not seem like much, but considering that Anheuser-Busch has 49% of the domestically brewed beer market, even small increases in overall consumption can have a big impact on the bottom line. Ralston points out that freshly minted drinkers tend to buy the mainstream brands of beer that Anheuser-Busch makes. These lighter beers -- their main ingredient is rice, which bodes well for Busch's China venture -- are typically consumed in quantity (as consumers age, they tend to drink less beer and to buy fuller-flavor brews). And Anheuser-Busch isn't just relying on existing brands that appeal to minutely differentiated market segments. These brands include the virtually identical Bud, Bud Light, Bud Dry, Bud Ice Light, Bud Select, Busch Light, Busch Ice, Natural Ice, Michelob, Michelob Light and Michelob Ultra. (Note to the boys in marketing: Somebody forget to print labels for Bud Select Ultra Natural Dry Ice.) The company has found a new segment: Xtreme/health-conscious drinkers. For them, Anheuser-Busch had invented B(E) beer, which features caffeine, ginseng and guarana. Beyond demographics, analyst Ralston sees two other factors that should propel Anheuser-Busch's shares beyond $50 barrier over the next six months. First is that the stock is at the low end of its price-earnings-ratio range of 16 to 27 over the past five years. And second, earnings per share dropped in 2005, and the last time that happened, in 1996, marked a terrific buying opportunity. Meanwhile, earnings are expected to rise from $2.55 per share this year to $2.80 in '07, according to Thomson First Call. So, sorry Sam. But when it comes to brewing stocks, Bud's my new best friend.