I started to follow beverage stocks in the late 90s. I would tour Napa Valley, meeting great wine makers at Pahlmeyer, Opus One, Newton Vineyard, Groth to name a few. My analyst girlfriend and I would jump in the car from our offices in San Francisco on a Friday and spend weekends researching great wines and tasting rooms, experiencing the hands on process involved in making a great wine, and the intricate steps taken to ensure quality.
As a beverage analyst, you are looking primarily at the revenue side of the balance sheet, and at the time, these private wineries were being bought up with profits by wealthy fund managers who were cashing in on their Dot Com investments.
It was fashionable in the late 90s to buy a winery, so our private research was sought by many who wanted to know which wines were good…and which wines were great. My girlfriend was much better at breaking down the nuance of these winery valuations, and I was good at drinking wine – so we were a great team. Many of these wineries remain private investments and few (other than Mondavi and Brown-Forman) stood alone as public company investments. So when I stumbled upon Willamette Valley Vineyards, Inc. ($WVVI) in 2002, and found they were a fully filing public entity, I reached out to them.
Wine Stocks Explode in the Early Aughts
In late 2002, shares of Willamette Valley were about $1.25 per share. I read a press release from the company about the benefits of wine, and how language could be placed on the bottle itself professing the health benefits. Little did I know at the time that shares were poised to make a 9x run based on the efforts of CEO Jim Bernau, and the rising tide for beverage stocks in general.
Over the next three years, shares in beverage stocks and WVVI followed the overall market topping in 2006 and bottoming in 2009. Willamette Valley put in a low in January 2009 at $2.00, and have been on steady rise since retesting the 2006 highs at current prices near $7.00. However, the winery has matured, and CEO Bernau has positioned the winery for growth via land purchases, contracts, leveraging of low cost capital and wine club acquisitions better than any CEO I have ever met with.
I spent some time with Jim recently, so I could visit the operation, see the new fields and experience the tasting rooms and understand his goals of giving the wine enthusiast an unforgettable destination – a goal he accomplished in spades. His low-cost capital raised via a preferred share offering will enable Jim and WVVI shareholders to build trendsetting "by appointment" tasting rooms and grow his wine club membership, outpacing his competitors by a healthy clip.
Keep in mind, at $60 million market capitalization, this is a small company, but the unusual thing about WVVI is the methodical way that they report earnings, cater to common shareholders and come up with creative ways to leverage being a public company. In an age when companies remain private for long periods before leveraging public markets, Bernau has marched his shares consistently higher while attracting all sorts of investors – some of whom employ a veiled accumulating posture using questionable methods of ownership and often sidestepping SEC rules. Jim is aware of this, and he has an internal plan. This occurs often when you do things well in equity trading, though it can only occur in thinly traded stocks like WVVI that are on a ramp of revenue and share appreciation – and the accumulators know this.
Over the past 20 years, I’ve enjoyed following beverage stocks, and I still love great wine! However, the thing I've really enjoyed here is dissecting shares in a small cap company that embodies what it is to be public as we exit 2015 and enter a new year and a new exciting era of investing.
Willamette Valley is a great American stock and a great American story, and I have enjoyed every sip along the way. It takes me back to those wonderful days in San Francisco, when I loaded up the car on a sunny Friday to head to the Napa Valley – the only difference is that now I’m doing it in a different valley.
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