After a roaring start to the year, Wall Street has had quite a rocky run in Q2. The market is down a bit since March 31, and investors who have enjoyed front-loaded returns in 2013 are now on the defensive.
Want proof? Consider that the Consumer Staples Select Sector SPDR ETF (NYSE:XLP) is up more than 4% in the past 30 days vs. an S&P 500 that is slightly in the red.
It makes sense that investors are moving into lower-risk sectors as gold melts down, blue-chip stocks continue to struggle with their top lines and seasonality threatens to throw a bucket of cold water on the rally. And one of the most attractive segments of the staples market to move into now — both for stability and for long-term growth — is the alcoholic beverages business. Here’s why:
- Baseline demand: In tough times, “sin stocks” peddling beer and spirits do very well. After all, if you can’t afford a tropical vacation, the least you can do is pour yourself a drink to unwind.
- Brand power: An entrenched alcohol brand — particularly in the spirits space — is difficult to unseat, both because of customer loyalty and the continued consolidation in the space via mergers and acquisitions.
- Emerging markets: As a growing middle class in Latin America and Asia develops a taste for Western products, beer and whiskey sales continue to see nice growth in these regions. Consider that Irish whiskey sales volume jumped 22.5% last year thanks to emerging market demand.
If you want to get a little defensive with your portfolio but still have the potential for growth, beer and spirits stocks are a good option right now. Three in particular that I like are mega-brewer Anheuser-Busch InBev (NYSE:BUD), spirits giant Diageo (NYSE:DEO) and midcap whiskey giant Beam Inc. (NYSE:BEAM).