This Controversial Beer Stock Is Popular Despite Alcohol Declines
There's no reason to sell this name even as a worrying trend in the sector continues.
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Now that it’s available on the HBO Max (WBD) streaming service, I’m finally watching "Mad Men." The show follows the adventures of a 1960s Madison Avenue advertising agency.
One thing in the show that quickly becomes apparent is the role of alcohol during a typical work day. Don Draper and company either already have a drink in hand, or are making plans to imbibe.
Some Sobering Statistics
The world has changed. According to Gallup, only 54% of U.S. adults consume alcohol. That’s a 90-year low, down from a high of 71% in 1978. Consumption is also down from 67% in 2022, during the height of the pandemic.
The reality of falling alcohol consumption was driven home this week when Diageo PLC (DEO) reported earnings. .
Spirits Are Low
The London-based maker of Johnnie Walker, Smirnoff and Captain Morgan plunged more than 15% on Wednesday after a disappointing earnings report. In addition to missing analysts’ revenue estimates, Diageo reduced its dividend and lowered its forward guidance.
Diageo shareholders have had a rough ride, as the chart below attests. Since December of 2021, this stock has fallen from $220 to $86, a decline of more than 60%
The news hasn’t been much better for beer manufacturers. Shares of Molson Coors (TAP) are down 23% over the past twelve months (left chart, below). Meanwhile, shares of Constellation Beverages (STZ) have lost about 28% over the past five years (right chart, below).
However, there is one beer name that stands above the rest. Shares of Anheuser Busch Inbev (BUD) are bucking the trend, climbing 34% over the past 12 months.
I first recommended this stock after BUD shares fell due to an advertising controversy. The buy was based on a theory that boycotts eventually end.
That theory wasn’t exactly correct. Sales of Bud Light have never recovered to their levels prior to the controversy. However, Anheuser Busch manufactures over 500 beer brands, so it’s possible that former Bud Light drinkers have found a replacement within the AB Inbev family.
Consumer Staples Are Hot
Year-to-date, Anheuser Busch Inbev has gained an outstanding 24%. This outpaces the 14% gain by the State Street Consumer Staples SPDR (XLP) , a bellwether for the sector and a beneficiary of the current rotation away from tech stocks.
Last month, we recommended several names in the consumer staples sector, and all three are performing well. As long as the consumer staples rally continues, there’s no reason to sell BUD.
At the time of publication, Ponsi was long BUD.
