Apparently, beer is a bear market.
After dominating the U.S. beverage market, beer sales have fallen flat — all as consumers opt for alternatives. For example, craft beer sales were up 7% in 2018 to $27.58 billion, giving it a 24.2% share of the $114.2 billion U.S. beer market. That’s up from 23.4% in 2017.
The bearish trend can also be attributed to millennials, who are less likely to drink beer, and are more likely to drink wine or spirits when they do consume alcohol.
Additionally, this shift can also be attributed to cannabis. “The emergence of legal cannabis in certain U.S. states and Canada may result in a shift of discretionary income away from our products or a change in consumer preferences away from beer,” once noted Molson Coors (NYSE:TAP).
It is part of the reason Constellation Brands took a 9.9% stake in cannabis giant, Canopy Growth Company (NYSE:CGC).
“We believe alcohol could be under pressure for the next decade, based on our data analysis covering 80 years of alcohol and 35 years of cannabis incidence in the US,” analysts at Cowen noted. “Since 1980, we have seen 3 distinct substitution cycles between alcohol and cannabis; we are entering another cycle.”
However, as beer companies wake up to changing demands for cannabis and health-conscious beverages, I’m spotting quite a few big opportunities. Here are three beer stocks to look into before the New Year.
Beer Stocks to Buy Before 2020: Anheuser-Busch InBev (BUD)
One of the biggest beer companies in the world got an icy reception in the latter part of 2019.
In fact, Anheuser-Busch InBev (NYSE:BUD) lost 23% of its value after weak sales in China became a drag on earnings, and after cutting its forecast for the year ahead. However, it appears the worst has been priced into the stock.
“While the quarter left much to be desired, management believes the company is well positioned for accelerating revenue growth over time. With the addition of SAB Miller, Anheuser-Busch is more diversified than ever,” says Motley Fool contributor, John Ballard. “Emerging markets make up about 70% of the company’s total volume, which holds a lot of opportunity to bring in new consumers for the largest beer maker in the world, with 26% global market share.”
Plus, BUD is well-diversified in cannabis. In late 2018, it announced a $100 million cannabis deal with Tilray (NASDAQ:TLRY) to develop cannabis-infused, non-alcoholic drinks. Not only is BUD well-positioned for international growth, it is positioning itself among a health conscious, cannabis-loving generation. Plus, Guggenheim analyst Laurent Grandet reiterated a “buy” on BUD. While he argues earnings weren’t as strong as he would have liked, he still believes BUD has “one of the most attractive growth algorithms in the space with continued optionality for M&A given the recently completed IPO in Asia-Pacific.”
Boston Beer Co. (SAM)
Since the year began, Boston Beer Co. (NYSE:SAM) has been one of the most explosive alcohol stocks on the market. Between January and December, shares have run from $231.57 to nearly $385 with plenty of upside remaining.
UBS just upgraded the SAM stock to a buy from a neutral rating, with a new price target of $440 — all thanks to strong growth in the company’s seltzer business. In fact, sales of Boston Beer’s Truly brand of hard seltzer are so hot, the company can’t handle the demand; That’s not a fad either.
White Claw’s hard seltzer is already seeing a nationwide shortage of its drinks in the U.S. As Americans seek out drinks with fewer calories and less sugar, they’re turning to hard seltzers. White Claw and competitor Truly both have around 100 calories per can, for example.
Even Anheuser-Busch launched its line of seltzer. “These new products can help those companies, such as Anheuser-Busch, ‘buffer those losses,'” Beth Bloom, associate director of US Food and Drink for Mintel has said, because beer sales are declining.
Constellation Brands (STZ)
Constellation Brands (NYSE:STZ) shares are up nicely from a 2019 low of $150.37 to around $200 in October with plenty of volatility in between.
While its biggest beer brands — including Modelo and Corona — are still enjoying fast growth, STZ’s diversification into the wine business should also bolster higher highs for the stock. For example, it just announced a deal with E&J Gallo Winery to buy more than 30 wine and spirit brands along with six wine-making facilities in the U.S. It is also launching a Corona-branded spiked seltzer mid-2020. Because of that and once the cannabis boom gets back underway, I strongly believe Constellation can be a $250 stock before long.
As of this writing, Ian Cooper did not hold a position in any of the aforementioned securities.