A search for growth on the vine

Last year was a good one for plenty of newly released wines, from Oregon pinot noirs to Napa chardonnays. For investors in wine-company stocks, however, 1998 left a generally unpleasant aftertaste.

The Nationsbanc Montgomery Securities Wine Index, which tracks three wine-related stocks -- Robert Mondavi Winery, Beringer Wine Estates and Canandaigua Brands -- rose just 4.9 percent last year, compared with a 26.7 percent gain for the Standard & Poor's 500. And the wine index has tumbled 13.5 percent so far this year through Friday.

But David Goldman, a Montgomery analyst, says winery stocks have been held down by fears, some of them unfounded. Some investors feared a grape shortage from heavy rains in 1998, while others feared a glut as large amounts of vineyard acreage entered production during the year; neither came to pass. More broadly, worries about an imminent recession have also been discounted. Worries remain, however, that a new excise tax could be placed on alcohol. And small- to mid-cap stocks of all types continue to languish. "These things won't always be true," Goldman said. He predicted 9 percent to 12 percent growth in sales volume, with higher growth in revenues as consumption continues to shift to better, pricier wines. "Bottom-line earnings growth looks like it will be 15 to 20 percent for the next few years," he said. "Lastly, there is a certain sex appeal." The latter factor has long been the main reason to like the Chalone Wine Group, a maker of many high-end wines. The company went public in 1984 at $9 a share; 15 years later it is trading at $8.375, despite sales growth that has been in the double digits throughout the 1990s. (Investors who hold at least 100 shares, however, enjoy a 25 percent discount on Chalone wines.) Mondavi went public in 1993 at $13.50 a share; it closed on Friday at $32.25 but has traded as high as $42.75 in the last 52 weeks. Beringer went public in 1997 at $26; it is now at $38.375, down from a 52-week high of $54.75. Two smaller wineries, R.H. Phillips and Willamette Valley Vineyard, are also publicly traded, as is Golden State Vintners, which makes wines sold under various labels. Canandaigua, a huge producer of lower-priced wines, made news this month by agreeing to buy the premium Simi Winery of California from LVMH Moet-Hennessey Louis Vuitton. Goldman is especially bullish on Mondavi and Beringer, which he expects to hit $47 and $55 over the next 12 months. He is cautious about Ravenswood Winery, which sold one million shares at $10.50 each over the World Wide Web on April 9, through W.R. Hambrecht & Co., in an online auction without traditional underwriters. "I love the company -- they have a real success story," Goldman said. "My only concern is that Ravenswood will end up on the dark side of the moon in terms of analyst coverage." Goldman has much company in recommending Mondavi and Beringer. Both have known brands and prime, extensive acreage in California. Mondavi had some earnings shortfalls last year, which it attributed to a shortage of grapes for its low-end Woodbridge chardonnay. Beringer has enjoyed steady sales and earnings growth. John O'Neill, an analyst at BT Alex. Brown, upgraded Mondavi to a buy in January, after the company announced a restructuring that trimmed the work force by 4 percent and refocused attention on core brands. "The structural change indicated the company will be more profit- focused," O'Neill said. At Beringer, he said, a new line of $8 to $10 wines, Beringer Founders Estate, should increase sales volumes. Bernice S. Behar, manager of the John Hancock Emerging Growth fund, said of Beringer: "The growth rate is there, and the demand is still pretty high. We continue to believe Beringer is the best-managed company in the business." Among the doubters of Mondavi and Beringer is Tom Pirko, president of Bevmark, a beverage industry consulting firm based in New York. He likes Beringer's management and the Mondavi family, but he does not believe either company should be public. "All these projects are the province of private equity deals," he said. "I don't know of any that really qualifies for a public offering."

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