A Deep Dive Into Alcohol Stocks in the Age of Social Distancing

Alcohol stocks may appear to be a good play in the age of Covid-19. After all, everyone’s stuck home with little to do beyond eating, drinking and watching Tiger King. It certainly is reasonable to think that under these circumstances, the alcohol industry could see a bit of a boon.

Before we look at the situation the alcohol industry finds itself in right now, let’s take a look at the alcohol industry and how alcohol stocks have been doing prior to Coronavirus.

The Alcohol Industry
An alcohol stock is a sin stock. That means it belongs to an industry that many people find ethically problematic. After all, we are all familiar with the problems that alcohol consumption can cause.

Nevertheless, sin stocks have long held an attraction to certain investors. After all, sin stocks have a reputation for being somewhat recession proof. The theory is that people are going to spend money on their booze even when times are rough. In fact, they may even increase consumption in order to deal with the fact that times are tough.

Does this conventional wisdom hold up? Not always. In fact, during the 2008 financial crisis that led to the Great Recession, Diageo and Constellation Brands, two of the largest alcohol stocks, performed poorly.

While some people expect alcohol stocks to remain non-cyclical, there is another theory. That is, that alcohol is a luxury. It’s certainly not an “essential” the way food is. And because luxury goods are part of a consumer’s discretionary spending, they may cut back on this luxury in hard times.

Another problem that the alcohol industry has been facing has been the adoption of healthier lifestyles. As people care more about what they are putting into their bodies, they are consuming less alcohol.

This has helped to contribute to a decline in alcohol sales for several years now. 2018 represented the third year in a row that alcohol sales were down. And it was, by most accounts, a terrible year for alcohol stocks.

After all, everyone’s stuck home with little to do beyond eating and drinking.

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Some Good Signs for Alcohol Stocks
There are positives for alcohol companies, though. For one thing, strong brands like Budweiser and Bacardi help give those brands pricing power in the marketplace. And the ability to command higher prices can lead to increased revenues.

Another plus for the industry is that brands that have a global distribution network are able to keep their cash flows high despite what may be happening in particular localized markets.

Also, not all alcoholic beverages are the same. Despite the continued dip in alcohol sales in 2018, sales in spirits rose to command 37.4% of the liquor market. Craft beer sales also have tended to remain strong.

Alcohol sales for the week ending March 21 rose 55% year-over-year as people stocked their pantries for social distancing regiments and shelter-in-place orders. The surge in sales was largely driven by spirits like tequila and gin, which increased at a clip of 75%.

Beer purchases were up by 66% while wine sales only increased by 42% year-over-year. Deliveries and a massive surge of online orders have driven the sales spikes. But Nielsen VP Danelle Kosmal has predicted that we’ve now seen the peak of alcohol demand.

Still, with trends like virtual parties and happy hours continuing to occur, perhaps we shall see a sustained increase in year-over-year alcohol sales.

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Alcohol Stocks to Watch
Alcohol stocks have not been faring well on the year so far. While the S&P 500 is only down about 16.5% on the year, liquor stocks have sunk about 33%. One can infer that investors have experienced great fear as restaurants and bars have been forced to close their doors to dine-in service.

Still, not all alcohol stocks are created equal. We’ve put together this short list of alcohol stocks to watch in the coming weeks. You may be able to pick something up from the bargain bin.

1. Boston Beer
Boston Beer Company (NYSE: SAM) is an alcohol stock that represents the owner of craft beer brands like Samuel Adams, Angry Orchard and Dogfish Head. They primarily sell their brands in the United States. Although, they do have some distribution overseas.

The firm has two major segments: Boston Beer Company and A&S Brewing Collaborative. The former’s alcohol portfolio includes Sam Adams, Angry Orchard, and Truly Spiked & Sparkling. The latter includes The Traveler Beer Company, Coney Island Brewing Company and Angel City Brewing among others.

Though Boston Beer’s stock has declined from its February 19th peak when it hit $433.62, it has been steadily increasing since it bottomed out amid great market turbulence on March 20th. It is currently trading around $370.

In 2019 Q4, Boston Beer earned a net income of $13.76 million on $301.3 million in sales for a margin of 4.57%. On the year it earned $110.04 million on $1.329 billion in sales.

As people continue to turn to craft brews over traditional beers like Budweiser, Coors and Miller, Boston Beer company’s staples like Sam Adams beer may continue to perform well. In the long run, Boston Beer Company will remain a strong brand especially with younger folks who are picky about their beers.

2. Brown-Forman Corporation
Brown-Forman Corporation (NYSE: BF.B) is an alcohol stock that represents one of the largest wine and spirits firms in the United States. Based in Louisville, Kentucky, Brown-Forman owns brands like Jack Daniel’s Tennessee Whiskey, Woodford Reserve and Korbel.

And the company’s assortment of liquor extends well beyond just whiskey and wine into vodka (Finlandia), tequila (Don Eduardo) and even liqueur (Chambord).

Like so many stocks, Brown-Forman has had a rough 2020. But like Boston Beer Company, it has seen itself rebound nicely since late March, climbing from a low of $44.68 to nearly $60 presently.

Fiscal year 2019 saw Brown-Forman earn a net income of $835 million on sales of $4.2 billion, representing a steady increase over 2017 and 2018. In January, 2020, the firm reported a net income of $231 million on sales of $899 million.

The strong branding power of lines like Jack Daniels should continue to give Brown-Forman Corporation a leg up over its distillery competition. And while the other names in this list tend to focus on beer, it may be good to diversify into these other alcohol products.

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3. Anheuser-Busch
Budweiser, brought to you by Anheuser-Busch (NYSE: BUD), is one of America’s most recognizable brands. But did you know they have a 28% share of the global market? That’s big business.

According to expert Bryan Bottarelli of Monument Trader Alliance’s wildly successful War Room, it’s going to be a big plus for Anheuser-Busch stock as soon as bars and restaurants begin to open again for business. That’s because the stock price has been hammered by these closures well below where it would sit in normal times.

When it comes to my personal choice in beers to drink, I’ll stick with Guinness thank you very much. But when it comes to the best stocks to buy during this downturn, I’m listening closely to what Bottarelli has to say about this alcohol stock.

4. Molson Coors
Care of my colleague and dividend-safety expert Rob Otman, his suggestion is to imbibe Molson Coors (NYSE: TAP) stock for its highly attractive dividend. Which is relatively safe.

Molson Coors is the world’s seventh largest brewer by volume. It is the product of a former merger between Coors of the Rocky Mountains and Molson of Canada. The latter is especially well-known to my fellow alum from Binghamton University circa the early 2000s (Binghamton, New York is not that far from Canada, after all).

Over the last ten years, Molson Coors has seen its dividend grow by 81% to $1.96. Meanwhile, the dividend yield is up to 5.31% as the price of Coors stock has been hampered during this downturn. Year-to-date the stock is down from a high of $58.69 on February 11 to $43.53 as of yesterday for a decline of nearly 26%.

Just as Anheuser-Busch may get a significant boost from the reopening of social life in the United States and elsewhere, the same is true of Molson Coors. Plus, you get the sweetener of a stable and safe dividend to increase your income.

Even if Molson Coors stock does continue to struggle in the near-term, it remains a good bet for a long-term play. So now remains an excellent time to lock in your high dividend yield while the share price of this alcohol stock is still beat down.

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Concluding Thoughts on Alcohol Stocks
Nobody knows for sure when social distancing is going to end. When we’ll be able to reenter society and drink our favorite brews in our favorite bars. But it’s a good bet that once things get back to semi-normal, at least some alcohol stocks are going to be set to take off.

Read more from Brian M. Reiser at InvestmentU.com

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