In a normal environment, I’d be looking for companies and sectors that were growing earnings faster than the rest, trusting that their underlying value eventually would materialize in the stocks’ prices. As we all know all too well, though, this summer has been anything but a normal environment for stocks. In fact, it has been doggone weird.
Still, it’s the hand we’ve been dealt. We can complain about it, or we can adapt. I choose the latter.
My adaptation is simple: Rather than finding growing companies and waiting for a sign that those stocks are starting to move, I’m looking for stocks that are actually moving, then checking to see if that bullishness makes sense — a bottom-up approach.
The surprising group topping that buy list? Booze — one of the year’s biggest winners so far.
The average distiller/vintner is up 21% year-to-date, versus the market’s gain of 11%. Constellation Brands (NYSE:STZ) and Diageo plc (NYSE:DEO) have led the way, with respective year-to-date gains of 53% and 23%.
The average brewer is only up 3% since the end of last year, which isn’t great, but even then we can chalk most of the group’s subpar performance up to one name — Molson Coors Brewing Company (NYSE:TAP). Anheuser-Busch InBev (NYSE:BUD) shares are higher by 33% since the end of December, and little Craft Brew Alliance (NASDAQ:BREW) is up 29% for the year so far. And even Molson shares have been on a roll since early June.
Even more amazing is that none of these names have really done anything ultra-compelling to drive the big gains. It just happened by these companies doing what they normally do.
And that might be the most compelling argument of all: That this trend indicates a deeper, philosophical undertow. But first things first.
Nothing to Complain About
Given the underlying results, it’s not hard to understand what’s driving these stocks.
Take Castle Brands (NYSE:ROX) for instance. The purveyor of brand names Jefferson’s (bourbon), Betts & Scholl wines and Tierras tequila posted a 31% increase in Q2’s revenue and a 23% increase in sales volume. On an EBITDA basis, the company swung from a loss of $500K a year earlier to $1.1 million this time around.
Molson Coors saw net sales increase last quarter as well, to the tune of 7% on a YOY basis, while operating income ramped up 12%. Companhia de Bebidas das America (NYSE:ABV), aka AmBev, managed a 10% improvement in Q2’s year over year top line, and a 9% increase in its EBITDA figure. Boston Beer (NYSE:SAM) pushed its operating bottom line higher by 9%, and its sales were pumped up by 10% in the second quarter.
You get the idea: Solid growth is the norm.