Molson Coors Brewing Company (TAP)

Wow, it's been a pretty tough morning for Molson Coors (NYSE: TAP) -- the stock was down as much as 15% earlier today. The market was pretty upset with the 20% earnings miss fueled by extra merger expenses with SABMiller (the MillerCoors initiative), higher commodity prices for things like barley and aluminum, and a write-down of the Molson brand in the U.S. None of this should have come as a huge surprise, though. Barley prices tend to rise and fall with corn and the season's barley crop is expected to yield more "feed quality" barley than "malt quality" barley used in brew dogs. Oil prices were particularly terrible in the 2Q, but have pulled back with corn prices over the past month. Of course the integration with SABMiller will run into snags in the short-term. The companies expect to extract $500m in expenses over a three year period, not a quarter.

While I think the market's reaction to the report was a bit harsh, the company's valuation was too frothy to begin with, so a pullback of this magnitude isn't all that surprising. For a company with little emerging market exposure (which is where substantial beer volume growth is happening), a 20x P/E was a bit absurd.

However, the pullback presents a decent opportunity for the BigVice portfolio to take a sip of TAP. At $49, I consider the stock only slightly undervalued -- I peg FV at $51.50. If this were a real-money portfolio, I would wait for a pullback under $45, but since ther purpose of BigVice is to pick reasonably-priced and highly-rated sin stocks, I pulled the trigger on TAP this morning.

For TAP investors with a long time horizon, today's news shouldn't make you close your tab. In fact, it may be time to order another.

Todd