Alcohol firms are businesses that produce and distribute alcoholic drinks such as beer, wine, and liquor.
Alcohol companies have a strong track of outperformance during economic downturns, indicating that they may provide diversity and recession resilience to a portfolio.
The leading businesses in this market possess a number of desirable characteristics, including pricing power and a healthy cash flow that enables them to pay dividends to shareholders.
What are Alcohol Stocks?
Alcohol stocks are stocks in firms that manufacture and distribute alcoholic beverages such as beer, wine, and liquor.
They are classified as "sin stocks" (akin to a vice fund), along with marijuana stocks, as well as stocks of cigarette, gambling, and weapons makers.
Alcohol is a multibillion-dollar industry, and it has considerable overlap with the water utility sector since alcohol distillation utilizes a substantial quantity of local water resources. However, when it comes to sluggish but steady beverage industries, alcohol sales often remain consistent even when overall consumer spending declines. Occasionally, alcohol sales rise as the economy deteriorates, as they did during the COVID-19 epidemic.
Like every other industry afflicted by the COVID-19 epidemic, the liquor sector was severely devastated. According to IWSR, worldwide alcoholic beverage consumption will decline by 6.2 percent in 2020 as a result of local pubs, clubs, and restaurants closing during statewide lockdowns. The worldwide supply chain disruption had an effect on the alcohol sector as well, with aluminum and glass shortages generating bottlenecks in beverage packaging, and raw material shortages were also a concern.
However, as economies gradually regain their usual speed, lockdowns are being removed, and demand for alcohol continues to grow. Globally, the alcohol sector is predicted to increase by 3% in 2021, owing to the stability of core markets and beverage businesses' swift responsiveness to changing market circumstances.
According to industry experts and researchers, a few trends that emerged prevalent in 2020 are here to stay. The COVID-19 epidemic boosted e-commerce, as purchasers abruptly moved their purchases of alcohol to internet stores during lockdowns. Second, whiskey is gaining popularity in major markets such as the United States and India, with whiskey income predicted to exceed $20 million by 2023.
Who is the World's Largest Liquor Company?
The Chinese are huge fans of a liquor called baijiu, which is produced by a variety of Chinese enterprises. It may take some getting used to for those unfamiliar with this drink—it tastes similar to harsh vodka and has a comparable intensity.
As with vodka, people in Russia drink baijiu in shots, toasting one another and downing it in one go.
The Chinese market for baijiu is enormous, and consumers are willing to spend 900 yuan (about $140) for a bottle. Rare bottles may fetch up to $20,000, and Baijiu's yearly sales volume exceeds that of vodka.
Kweichow Moutai is the largest producer of baijiu. While Europeans and Americans may be unfamiliar with the name, Kweichow Moutai is the world's largest alcohol manufacturer.
The corporation now has a market valuation of $384 billion.
Kweichow Moutai is listed on the Shanghai Stock Exchange, and non-Chinese residents may invest in the company through the Stock Connect, Qualified Foreign Investor, or RMB (Renminbi) Qualified Foreign Institutional Investor programs.
The majority of liquor and alcoholic beverage firms have established strong brands and commanding pricing power. They benefit from a worldwide distribution network and a more robust cash flow, which enables them to pay a greater dividend to owners.
1. Investing in beer stocks as a first step
The beer business is a good long-term investment. Consistently performing beer maker firms provide a continuous dividend to shareholders.
Additionally, there has been a significant movement in customer tastes. They're increasingly choosing beer stocks from firms such as Boston Beer Company - which specializes in craft beer, seltzers, and hard ciders - over mass-market beer producers.
2. Investing in stocks of other alcoholic beverages, such as whiskey
The majority of whiskey, rum, tequila, and other spirits stocks (for example, Globes Spirits) provide a stable dividend.
3. Investing in wine-related stocks
For the previous two decades, wine has beaten the S&P 500 by a factor of 1,000, even during downturns! As a result, wine is an appealing sector for long-term investment.
However, there are significant disadvantages to investing in alcohol stocks.
The Risks Associated with Investing in Alcohol Stocks
The following are four primary reasons why you should not invest only in alcohol stocks:
1. Certain alcohol firms fare poorly during recessions.
Despite their reputation for being recession-resistant, several liquor firms have struggled during downturns.
For instance, during the 2008 financial crisis, Diageo and Constellation Brands did quite badly.
During this time period, wine and other beverage stock stocks dropped to multi-year lows. Distillers and wineries had the most significant declines in P/E ratios, followed by soft drinks and brewers.
2. Volatility in even the most prosperous economic settings
When markets are turbulent, as they are under normal economic circumstances, the stock of alcohol tends to vary. In 2015, Diageo's liquor stock lost 11.63 percent of its value, while Constellation Brands' stock gained 54.93 percent.
3. Requires much time and effort
You'll need to invest significant time and effort researching liquor firms and stock market trends in order to choose the finest ones for your portfolio.
4. Intermediary
You may commit your alcohol stock investments to brokerage services to save time and effort. However, you will be required to pay hefty commissions each time you purchase or sell a stock and currency conversion and account maintenance fees.
What Publicly Traded Liquor Companies Exist?
The simple answer is that practically all liquor firms are publicly traded on the stock market. While some small, independent distilleries are not publicly listed, the majority of the brands you find at your neighborhood retailer are almost definitely part of the portfolio of a publicly traded firm.
However, brands may change ownership as larger businesses diversify their portfolios when we have seen. If you wish to invest in the company that produces Casa Noble Tequila, you will discover that it is owned by Constellation Brands.
Pernod Ricard SA (OTC:PDRDF)
Pernod Ricard SA (OTC: PDRDF) is the world's second-biggest retailer of wine and spirits, and the French beverage giant is well known for its anise-flavored pastis. Pernod Ricard SA (OTC: PDRDF) drinks are offered in over 160 countries under more than 240 unique and premium brands. Jameson, Avion, Ricard, Malibu, and Pernod among the trademark brands.
Pernod Ricard SA (OTC: PDRDF) reported revenue of $2.34 billion for the third quarter and forecasted organic growth of 19 percent in the first nine months of 2021. Sales in the third quarter beat analysts' estimates of $2.21 billion by $0.13 billion.
Celine Pannuti of JPMorgan boosted the price objective on Pernod Ricard SA (OTC: PDRDF) to €250 from €225 on November 30 and maintained an Overweight rating on the shares.
On September 21, Pernod Ricard SA (OTC: PDRDF) announced the acquisition of The Whiskey Exchange, a leading online retailer of beverages and fine spirits. The acquisition enables Pernod Ricard SA (OTC: PDRDF) to capitalize on synergies and expand its clientele through The Whiskey Exchange's robust online global presence.
Along with Constellation Brands, Inc. (NYSE: STZ), Brown-Forman Corporation (NYSE: BF-B), Molson Coors Beverage Company (NYSE: TAP), and Diageo plc (NYSE: DEO), Pernod Ricard SA (OTC:PDRDF) is one of the greatest liquor stocks to purchase right now.
Brown-Forman (BF.B)
Brown-Forman has a strong track record of dividend increases, and the firm has grown its dividend for 38 consecutive years, making it a Dividend Aristocrat.
Brown-lengthy Forman's history of dividend growth is a result of its strong brands and recession-resistant business model. It has a vast product portfolio that is heavily weighted toward whiskey, vodka, and tequila. Its most well-known brand is Jack Daniel's, and Herradura, Woodford Reserve, El Jimador, and Finlandia are among popular brands.
Over the next five years, we anticipate Brown-profits Forman's will expand at a rate of around 7% each year. Additionally, the stock yields 1.1 percent.
On the other hand, Brown-Forman is highly overpriced at a P/E ratio of 39, compared to our fair value multiple of 24.
As a consequence, the stock's predicted annual return is negative, at -1.2 percent. This, in our opinion, makes the stock a sell.
Constellation Brands
Constellation Brands is one of the world's major alcohol manufacturers, having operations in beer, wine, spirits, and marijuana. Constellation paid a small dividend yield of 1.6 percent in 2019 and has expanded its reach to more than 150 countries. Constellation has made an effort to diversify its assets with its $4 billion investment in Canopy Growth during what has been a difficult period for the alcohol sector. Though this investment has so far resulted in losses, it provides them with an early footing in an industry estimated to be worth over $75 billion by 2027.
Constellation's fortunes are beginning to improve significantly after its July 1 Q2 financial report, demonstrating that people sometimes need a drink despite a pandemic, civil upheaval, economic depression, and everything else. Earnings per share adjusted to $2.30 on revenue of $1.96 billion above forecasts, despite a 4% decline in beer sales – presumably unconnected to the company's unfortunate-named Corona beer. Constellation has so far survived the worst of 2020, recovering almost 80% from its March lows, and with companies reopening, the company might be in for a much better quarter in Q3, making it my favorite growth alcohol stock at the moment.
Diageo PLC (DEO)
Diageo is one of the world's biggest beverage corporations, with a market capitalization of around $100 billion. Additionally, it is one of the world's oldest corporations, dating all the way back to the 1600s. Diageo is a major conglomerate of the alcohol industry with a significant brand portfolio. Diageo controls 20 of the top 100 liquor brands in the world. Johnnie Walker, Smirnoff, Captain Morgan, Baileys, Tanqueray, Guinness, Crown Royal, and Ketel One are just a handful of the company's main brands.
Diageo was not immune to the coronavirus epidemic, and its financial performance in the most recent fiscal year was affected. Organic net sales on a global scale decreased by 8% in fiscal 2020. However, Diageo achieved organic growth in North America throughout the fiscal year. This is critical, given North America accounts for 39% of the company's entire sales.
While the company's last fiscal year was largely considered a failure, Diageo has a strong long-term potential, which qualifies it for inclusion on our list of dependable alcohol stocks. One significant factor is its pervasive presence in underdeveloped countries around the globe. Emerging markets are increasingly critical for Diageo, which creates a headwind in the near term but is expected to become a tailwind in the long run.
Emerging markets are among the world's fastest-growing economies. For example, Africa, Latin America & the Caribbean, and Asia-Pacific account for over 40% of the company's sales. When the global economy normalizes, these markets should resume greater growth rates.
Diageo provides a semi-annual dividend, which equates to two distributions each year. It distributes an interim dividend in April and a final payout in October on a regular basis. The split between the two payments is around 40/60. For 2020, the annual dividend payment was $3.55 in US dollars, yielding a 2.2 percent dividend yield. The 2020 dividend was raised by about 3.5 percent above the 2019 distribution, resulting in a dividend yield and growth profile for Diageo stock.
Molson Coors (TAP)
In 1873, the Molson Coors Brewing Company was created. Since then, it has evolved to become one of the major breweries in the United States. It owns a number of beer brands, including Coors Light, Coors Banquet, Molson Canadian, Carling, Blue Moon, Hop Valley, Crispin Cider, and Miller.
Molson Coors published third-quarter 2021 results on October 28, 2021, for the period ending September 30, 2021. The firm produced $2.82 billion in revenue during the quarter, up 2.5 percent from Q3 2020. North American net sales decreased by –1.2 percent but increased by 19.2 percent in Europe.
Net income was $453 million, or $2.08 per share, in Q3 2020, up from $342.8 million, or $1.58 per share, in Q3 2020. Earnings–per–share reached $1.75 on an adjusted basis, up from $1.62 before.
The firm is investing its efforts in developing its key brands via investment in existing brands and acquisitions.
We anticipate annual returns well around 10%, based on predicted earnings per share growth of 4%, a dividend yield of 2.8 percent, and a large boost from a rising P/E multiple.
Craft Brew Alliance
Anheuser-Busch is the parent corporation of Craft Brew Alliance. The firm produces a variety of beers and ciders and takes pride in its environmentally friendly practices. It is well-positioned to capitalize on the growing interest in craft brews. On the other hand, the Brewers Association asserts that Craft Brew Alliance is not a craft brewer.
According to the Brewers Association, Craft brewers are "small, autonomous, and traditional" businesses. Due to its affiliation with Anheuser-Busch, the Craft Brew Alliance is none of these things. Consumers' interest in this is debatable. Keep an eye on stock prices before making a significant investment.
Willamette Valley Vineyard (NASDAQ: WVVI)
This corporation produces wine and associated drinks based in Oregon, as the name implies. Their comprehensive collection includes Pinot noir, Chardonnay from the Dijon clone, Pinot Gris, and Riesling. Additionally, they are the first crowdfunded winery in the United States and a pioneer of Oregon-made wines.
Investing in the firm is an investment in its future growth potential. Earnings per share have been $0.37 so far, and in 2020, they expect to generate $26.3 million in sales, which is remarkable for a business of this size.
Anheuser-Busch InBev (BUD)
AB-InBev is the world's biggest beer corporation. It was formed in its present form as a consequence of the 2008 merger of InBev and Anheuser-Busch. Today, it distributes over 500 beer brands in more than 150 countries. Budweiser, Bud Light, Corona, Stella Artois, Beck's, Castle, and Skol are just a few of the company's most popular brands.
AB-InBev now sells 17 distinct beers, each of which generates at least $1 billion in yearly sales.
AB-InBev has grown mostly via massive acquisitions of other beer firms. AB-InBev was formed in 2008 as a result of a $52 billion merger between Interbrew of Belgium, AmBev of Brazil, and Anheuser-Busch of the United States.
In 2013, AB-InBev paid $20 billion for the remaining share of Grupo Modelo that it did not already own. Finally, AB-InBev purchased SABMiller for a reported price of more than $100 billion.
The firm pays a dividend twice a year, similar to many other European corporations; however, the interim dividend was halted owing to COVID-19, and only the final dividend was paid. The corporation has prioritized debt reduction above dividends in order to meet its net debt-to-EBITDA ratio target.
We anticipate annual returns of 3.3 percent, owing to 3% earnings per share growth, a 1% dividend yield, and a minor loss in value due to a lowering valuation multiple.
Conclusion
Alcohol is a highly competitive industry, and firms must invest much in the promotion and maintain an ethical code of behavior. Winston Churchill allegedly said, "I have extracted more from drink than alcohol has extracted from me." If you exercise caution and make informed decisions, your returns will definitely be appealing.
Real-time News
