Alcohol stocks fall into the consumer staples sector for their defensive attributes. It’s not that people “need” their products, but they tend to buy them no matter the state of the economy. Not surprisingly, brewers delivered outsized earnings growth of 32.4 when compared to the earnings growth of the overall consumer staples sector.
However, earnings growth is expected to normalize relative to the sector. That means investors will have to be more selective in choosing alcohol stocks to buy. And it’s a reason why they may want to find avoid Anheuser-Busch InBev (NYSE:BUD) stock.
In its most recent earnings report, Anheuser-Busch reported record global annual revenue of $59.4 billion. However, analysts expected more. This was the third straight quarter that the company missed analyst expectations on the top line.
Digging deeper into the company’s report, investors can see that while revenue is up, volume is down. And the numbers don’t lie. North American sales of the company’s Bud Light brand remain a problem. That’s an issue that continues to weigh on BUD stock which is down 3.93% in 2024, erasing much of the stock’s 6-month gains.
Nonetheless, with the economy expected to improve in the back half of the year, alcohol stocks still offer a compelling investment opportunity. Here are three stocks that offer better value and less noise than BUD stock.
Constellation Brands (STZ)
Constellation Brands (NYSE:STZ) is not just a beer company. However, it has been one of the biggest beneficiaries of Bud Light’s struggles. Constellation is the parent company of the popular Corona, Corona Light, and Modelo brands.
In 2023, sales of the company’s Modelo brand surged. In fact, the brand dethroned Bud Light as the Top-Selling Beer in America. It should come as no surprise, therefore, that STZ stock is up 21.55% in the last twelve months.
But is it safe to buy STZ stock with sales expected to normalize? Based on the company’s January earnings report, the answer seems to be yes. The company missed on the top line, but beat on earnings which also came in 12% higher year over year (YOY).
That kind of performance supports the company’s valuation of 27x forward earnings, and the analysts’ projected stock price of around $287. Also noteworthy is the company continuing to pay a dividend in 2020 and has raised it every year since then. It now has a 1.38% yield and pays $3.56 per share annually.
Molson Coors (TAP)
Molson Coors (NYSE:TAP) is the fourth largest beer company in the world. The company has a portfolio of mature beer brands such as Coors, Coors Light, Miller, Miller Light and Blue Moon. The company was another benefactor from Bud Light’s struggles. The Coors Light brand grew volume share more than any other beer brand in 2023.
This is reflected in the company’s revenue growth which increased every quarter YOY despite tough comparisons to 2022. And although we’re just over two months into 2024, Molson Coors is reporting the most dollar share growth of any beer brand year to date (YTD).
If you’re a fan of slow and steady growth with a nice dividend to boot, TAP is a nice option to consider. It trades at just 11x earnings which is right around the sector average for brewers. And, Molson Coors has a safe, growing dividend with a yield of 2.73%.
Brown-Forman (BF.B)
Brown-Forman Corp. (NYSE:BF.B) is the only company on this list of alcohol stocks that doesn’t have a beer brand. That could be one reason that BF.B stock is down 11.5% over the last 12 months. Alcohol may be a defensive purchase, but beer sales have been the primary driver.
Nevertheless, Brown-Forman is the parent company of whiskey brands such as Jack Daniel’s and Woodford Reserve. The company was also early to the tequila trend, and is seeing strength in its Ready-to-Drink portfolio.
In the company’s most recent earnings report on March 6, it missed analysts’ expectations on the top line even though the number was flat YOY. However, Brown-Forman has shown slight gains in revenue and earnings over the last 12 months and raised its full-year outlook.
As long as interest rates and the rate of inflation remain high, there may be some pressure on earnings. Further, the stock does look fairly valued at around 27x forward earnings. But, Brown-Forman maintained its dividend in 2020 when many competitors did not. That speaks to the strength of the company’s balance sheet and provides a reason for consumers to get involved with BF.B stock.
On the date of publication, Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
