One of the simplest ways to make money in this market has been to own the leader in a fast-growing category. Hard seltzer increasingly looks like one of those categories. Boston Beer (NYSE:SAM) already is one of the category’s leaders — making Boston Beer stock a must-own for investors.
To be sure, Boston Beer stock isn’t cheap. The company will need to fend off hard-charging competition.
But valuation certainly hasn’t been a reason to sell quality stocks in this market. And the decades of expertise Boston Beer has acquired in building Sam Adams into one of the country’s most popular beers should allow the company to keep its market-leading share.
Fourth-quarter earnings might not show the company’s potential strength. In fact, earnings may decline on a year-over-year basis. If that leads to a short-term sell-off, it will make Boston Beer stock an even more attractive long-term play.
Hard Seltzer Can Drive Boston Beer Stock Higher
Hard seltzer already is a billion-dollar industry. It’s likely to grow for years to come.
After all, hard seltzer can be enjoyed by pretty much any consumer. One serving of Boston Beer’s Truly seltzer has just 100 calories. It’s refreshing, tastes good, and targets drinkers who don’t enjoy liquor or wine.
In fact, a recent report notes that millennials actually prefer hard seltzer to wine. That shift led U.S. wine sales in 2019 to actually decline almost 1% year-over-year.
The wine market in this country is over $70 billion annually. Hard seltzer is taking market share from beer as well. And so if coming generations truly prefer hard seltzer over the alternatives, $100 billion-plus in alcohol sales are up for grabs.
It doesn’t take much in the way of market share for that opportunity to drive material upside in Boston Beer, which still has a market capitalization below $5 billion.
Competition on the Way
One key issue for Boston Beer is that in hard seltzer it’s not the sales leader — yet. That title currently goes to privately held Mark Anthony Brands, whose White Claw owns about half the market.
But Truly isn’t far behind, at roughly one-third market share. The question is if other rivals can chip away at the dominance of the sector’s two leaders. Anheuser-Busch InBev (NYSE:BUD) has launched seltzers under both the Natural Light and Bud Light brands. Molson Coors (NYSE:TAP) is bringing Vizzy to market.
There’s Arctic Summer from Polar, which has a solid share in non-alcoholic sparkling water. Private companies like Bon & Viv and Henry’s are attacking the market. Diageo (NYSE:DEO) unit Smirnoff is trying to capitalize on its Smirnoff Ice brand. Once marijuana legalization becomes a reality in the U.S., cannabis-infused seltzers too will enter the market.
Truly Can Win
The fear is that those competitors, large and small, will erode Truly’s market share. And that is what has happened in the non-alcoholic space.
National Beverage (NASDAQ:FIZZ) had an early lead with its LaCroix sparkling water. Competitors ranging from Coca-Cola (NYSE:KO) and PepsiCo (NASDAQ:PEP) to Nestle (OTCMKTS:NSRGY) and Spindrift have taken its sales, however. After rising more than 1,000%, FIZZ stock has lost more than two-thirds of its value.
But I’d point to a note from Credit Suisse that Barron’s highlighted this month. That firm’s analyst pointed to the energy drink space as a different precedent. In that category, investors assumed that Red Bull and Monster Energy (NASDAQ:MNST) would be overtaken by giants like Coke and Pepsi. Over a decade later, Red Bull and Monster are the unquestioned leaders in the category. As of last year, MNST was the best stock of this century.
I don’t expect SAM stock to gain 60,000%, as Monster did. But I do expect Boston Beer will keep healthy share in a growing market — and that should be enough to drive Boston Beer stock higher.
Is It a Buy After Earnings?
There is a short-term consideration, as Boston Beer reports fourth quarter earnings on Wednesday afternoon. And it’s possible that report could provide an opportunity.
After all, Boston Beer’s numbers aren’t likely to be spectacular. Hard seltzer sales slow in the fall and winter months. The company is spending on marketing behind Truly and other products. And the legacy beer portfolio, even with help from last year’s acquisition of Dogfish Head, has seen choppy performance in recent years.
Investors sold Boston Beer stock after the third-quarter report: shares dropped 8%. They’ve risen almost 20% since. I wouldn’t be surprised to see a repeat in the near term. Some investors still are focusing on the beer business, and thus may see Q4 as disappointing. Savvy investors, however, see a billion-dollar opportunity in hard seltzer — an opportunity which should make Boston Beer stock an attractive long-term pick.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. The power of being “first” gave Matt’s readers the chance to bank +2,438% in Stamps.com (STMP), +1,523% in Ulta Beauty (ULTA) and +1,044% in Tesla (TSLA), just to name a few. Click here to see what Matt has up his sleeve now. Matt does not directly own the aforementioned securities.