AB-Inbev: Changing its tune?

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When it came to share selection at the “VFB-Day of the Tips” in Ghent on Saturday 29 September, the famed share AB-Inbev was given the highest score as the most promising share.
Sufficient reason to look at this share from a technical standpoint as well…

Many investors are convinced that buying at bottom prices is a guarantee for good returns on the long term. A higher mathematical education is not needed to confirm this.
This interesting guarantee comes with two conditions, however:

  • Is the price indeed the actual bottom price?
  • How long will this bottoming-out take?

It is exactly those two conditions that often cause a much lower yield than that which is expected of the share portfolio.

A commodities’ share reliant on the price of a commodity can temporarily be affected by a difficult period. If you, as an investor, see that the price of the commodity increases again, you know that the share will recover soon as well. 

There was (or is) something more going on with the AB-Inbev. Tee profits went down and an increase in grain price would not remedy this. 
AB-Inbev is a textbook example of a company with an incredible growth, followed by a period of depression. We can refer to this as “the good and the bad years” of the company. 

It is remarkable that, thanks to the good years, these kinds of companies become the most popular after the first important price fall. One recalls the highest price from the past (€124.20) and assumes that the price recovers to this level quickly. Reality is different. After a two-year decrease, the AB-Inbev quotes 40% lower at €75.20. 


Trend analysis

If you place the trend gauge underneath the share (graph 1), you can recognize four important phases over a period of 15 years.

  • From 2003 to 2008: Rise from €10 to €40
  • Decrease during the difficult market climate of 2008 and 2009
  • Increase until 2016
  • Decrease as of 2016

During the first 3 phases, the share was technically strong. The decrease in 2008 was a logical result of the general stock market malaise, and see how strongly the share rose after the malaise recovered. 

As of 2016, more is going on, because the markets are doing fairly well.


Comparison to the EuroStoxx 600

If you as an investor notice that your favorite share no longer follows the upward market trend, it is best to temporarily hop over to a different share (graph 2). 

Sooner or later, there will be a bottom. After the bottom, a consolidation will follow, and when the numbers improve, there will be another rise with higher tops and higher bottoms. This takes time, and other shares will perform better in the meantime. 


Sector comparison for stock market indexes

An attentative investor can state that the phenomenon is on account of the sector. Nowadays, this phenomenon is indeed often seen in the Telecommunications sector. The sector quotes at the incredibly low price level of 2009 once again. The Breweries sector performs much better, but, naturally, it is not the sector that makes the market index rise (graph 2).  


Sector comparison to Breweries

If you compare AB-Inbev with different breweries (Graph 3), you notice that the percentage difference has been increasing since January. In March,  there is a brief recovery, but since then, other breweries have been outperforming AB-Inbev. This is not a good sign.


Check the volume

AB-Inbev still reaches new bottoms and has dropped within the early support-resistance zone of 2013 (indicated with the red frame on graph 1). The main support lies at €69, the first resistance at €80. The share only reaches a new top when the price rises above €91 once again.

The distance is too large, and in the best case, the price will consolidate between these levels.

For now, it is a matter of waiting for a good bottom. This requires many investors. Check the volume in graph 1 in 2009 as illustration. This is a bottom with a pronounced volume (= investors).

You notice that the volume in the previous weeks is increasing, but for a powerful signal, it is a matter of waiting for a much more pronounced volume.


Changing its tune?

AB-Inbev is loved by investors, because it performed wonderfully until October 2016. The sector Breweries performs below the bar and the share AB-Inbev is doing less well than its competitors. AB-Inbev is an example of a counter trend share. 

Counter trend shares, too, get a place within an investment portfolio. Keep in mind, however, that a portfolio has to consist for at least 90% out of trend shares. These are shares with an upward trend from a strong sector.

If you do not yet have counter trend shares in your portfolio, you can consider buying on the condition that the market gives off a strong signal: a pronounced volume or a first price impulse above €82.  
Do keep in mind that when counter trend shares drop below an important support, they often do this ferociously. For AB-Inbev, the next support is at €64.


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