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Investing in Booze? You Should Drink to That

Why beer, wine and liquor are hot — and why they'll stay hot

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Oh, it wouldn’t be fair to say last quarter was chock full of huge, flawless growth, but the numbers still tell a broad story: Most of these brewers and vintners saw double-digit or near-double-digit comps, while the overall market (the S&P 500, anyway) only posted a 1.4% earnings increase and saw flat sales in Q2.

Point being, there’s clearly something booze companies are doing that most other industries haven’t been able to do very well of late — get people to whip out their wallets.

The Real Reason

The numbers all confirm that consumers drank more beer, wine and liquor last quarter than they did in the year-ago period. That’s nothing new. Booze sales are fairly resilient, even in the worst of times. Add in the likelihood that these companies will meet their considerably higher 2013 targets, and it’s not difficult to justify owning a piece of this leading industry now.

What I really want to know is whether this oversized growth rate is in a position to remain this hot. After all, that’s the whole point of paying what some might consider premium-priced P/E levels.

The answer is yes: Alcohol is gearing up for another big year, for a couple of reasons.

The first one is obvious: Contrary to what most of the financial media want you to believe, consumers aren’t dead. If numbers from the Distilled Spirits Council of the U.S. are on target, consumers actually are feeling much better (the ones who are still working, anyway) than they were a couple of years ago. Not only are alcohol sales up about 4% year-to-date, drinkers are gravitating back to premium brands. In fact, premium-label alcohol sales increased by 5.3% in 2011 after falling 3.5% in 2009. “Super” premium alcohol sales ramped up 9% last year.

That might be a tough pill to swallow for investors who are wholly convinced that the average consumer is only interested in stockpiling canned goods for the coming apocalypse. But numbers don’t lie, and consumer trends die hard.

The second reason beer and wine sales are poised to stay strong? It’s considerably less obvious, yet quite logical. Old, unspoken cultural roadblocks that kept so many of the Southeast’s small towns “dry” (or at least dry on Sundays) are falling by the wayside as tax revenue becomes more important than clinging to the good ol’ days.

Only 17 states completely preclude dry communities, leaving the other 33 states to make the wet/dry decision at the city or county level. Regions that have been more dry than not are starting to realize sales of alcohol also are a way of generating much-needed income for financially strapped local governments.

Neither trend is apt to stop anytime soon, making booze stocks the decent bet they seem to be here.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities.

Article printed from InvestorPlace Media,

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