As iconic American brands like Budweiser and Miller are acquired by foreign companies, U.S. investors are embracing (Latin) America's Team. Large Latin American brewers have corporate names that roll off the tongue and stock prices that have rolled up impressive long-term gains. What they have in common is U.S. listings, large market caps, and stock performances that have easily surpassed the S&P 500 index over the last five years.

From Brazil, there's Companhia de Bebidas das Americas, better known in the U.S. as AmBev (NYSE: ABV), the maker of Brahma. From Mexico, there's Fomento Economico Mexicano, also known as FEMSA (NYSE: FMX), which offers Dos Equis. From Chile, there's Compania Cervecerias Unidas, or United Breweries (NYSE: CCU), with its signature brand, Cristal.

As a long-term investment, they've outperformed the last of the big U.S.-based brewers, Molson Coors (NYSE: TAP), which is half-Canadian. Over the past 12 months, the Chilean and Brazilian brewers have been the big winners versus the broad market index and Molson Coors.

Strategic advantages
The Latin brew kings have succeeded because they dominate the beer business in their respective countries and/or have strong showings in their own country and other selected markets. Their principal markets offer greater potential growth than the mature markets in the U.S., Canada, and Western Europe, and their success has been aided by diversifying outside the beer business.

For example, FEMSA operates a chain of convenience stores called Oxxo. For the second quarter, income from operations for this division rose 40.9% versus the year-ago period, far outpacing the company's performance in its beer division.

FEMSA is also in the soft drink business. It owns 53.7% of Coca-Cola FEMSA (NYSE: KOF), the second largest Coca-Cola bottler in the world. Coca-Cola (NYSE: KO) owns 31.6% of Coca-Cola FEMSA, which accounts for nearly 10% of Coke's worldwide sales. For the second quarter, this non-beer beverage business posted a 30.4% gain in sales and a 16% gain in operating income versus the year-ago quarter.

As the worldwide beer business continues to consolidate, some companies could be attractive to giants such as SABMiller that have demonstrated a thirst for expansion. Four years ago, SABMiller bought a major Colombia brewer, giving it a strong presence in Colombia, Panama, Peru, and Ecuador.

The boys from Brazil and Belgium
AmBev epitomizes worldwide beer-consolidation. It was formed by the merger of two giant Brazilian brewers in 1999. It has acquired Quinsa, a Luxembourg-based holding company that owned most of a Bermuda-based company that controls beer and/or soft drink businesses in five South American countries.

AmBev also owns the big Canadian brewer Labatt. Gaining control of Labatt in 2004 was part of a complex deal that enabled the Belgian brewer InBev to buy a majority stake in AmBev. U.S. beer drinkers know InBev as the acquirer of Anheuser-Busch. The beverage behemoth is now called Anheuser-Busch InBev (OTC BB: AHBIY.PK).

AmBev's second-quarter performance illustrates the benefits of Latin American beer investing. Its profit rose 34%, and its revenue climbed 13% from the year-ago period.

But AmBev comes with a bunch of warnings, too. It reminded investors in a recent SEC filing that Brazil has "periodically experienced extremely high rates of inflation." Don't forget the stronger U.S. dollar that has buffeted dollar-reported earnings of foreign companies. Last year, Brazil's real depreciated 24.2% versus the dollar. And thanks to its market dominance in Brazil, AmBev has tilted with that country's antitrust regulators.

Risks and rewards
United Breweries also illustrates the value of diversity. It is the largest brewer in Chile, the second largest brewer in Argentina, the third largest soft-drink company in Chile, and the largest mineral water company in Chile. Its licensing agreements range from Nestle to Guinness, the latter of which is owned by Diageo (NYSE: DEO). Continued...