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The alcohol market in the U.S. has expanded significantly over the past few years on the back of strong demand. Moreover, improvement in the U.S. economy, especially solid growth witnessed in the labor market, played a vital role in boosting the outlook for the alcohol industry for the upcoming months.

The industry is also poised to benefit from the upcoming holiday season. In this encouraging backdrop, selecting potential stocks from the domain may prove to be a profitable investment option.

Alcohol Industry in Good Spirits

Though data from Euromonitor showed that global alcohol consumption declined last year, it increased in the U.S., which is the second biggest consumer of alcohol. The report cited that alcohol consumption in North America grew at a pace of 2.5% in 2015. It indicates the growing popularity of three major segments within the domain – beer, spirits and wine.

Though beer has the largest market share among the three, spirits continued to see gradual increases in market share. Spirits' market share increased to 35.4% in 2015 from 35.2% in 2014.

While volume at the spirits segment grew 2.3% year on year, revenues increased 4.1% year over year. Within the spirit segment, whiskey has seen robust growth over the past few years. This is especially true as high-end premium and super-premium bourbon and Tennessee whiskey brands saw revenues surge 50% and 155%, respectively, between 2010 and 2015 in the U.S. alone, as per the Distilled Spirits Council of the United States. The Irish Whiskey and Single Malt Scotch industries are also growing at a rapid pace. These segments registered year-over-year growth rates of 19.9% and 13.5%, respectively. 

Factors Boosting the Alcohol Sector

Among others, the spirits and wine market is significantly benefiting from favorable demographic trends. The baby-boomer generation remains at peak spirits and wine consuming ages both in Europe and the US. Younger generations are also consuming more spirits. Separately, the surging popularity of high-end and super-premium spirits is also helping the sector to register healthy growth over the past few years. It is speculated that favorable consumer confidence levels and encouraging labor market conditions have aided the sector over the past few months.

Recently released initial claims data showed that the number of jobless claims now stands at more than a 40-year low level, indicating improving labor market conditions. Moreover, consumer confidence touched its nine-year high level of 104.1 last month. Retail sales rebounded in September, increasing by 0.6% last month after declining slightly in August. Meanwhile, the data showed that sales at beer, wine & liquor stores witnessed year-over-year growth rate of 3.3% in August.   

Favorable Outlook

A Morgan Stanley study showed that most of the alcohol distributors in the U.S. are optimistic about the industry’s progress in the coming six months. The survey showed that 53% of the distributors, who were interviewed during the survey, looked confident about the outlook for the industry over the next six months. This was significantly higher than 40% registered in April. Among the top brands, over 90% distributors predicted that Jameson, Remy Martin and Woodford Reserve are poised to witness healthy growth in the coming six months.

The study cited low oil prices, uptick in consumer confidence and encouraging labor market conditions as the main reasons behind this favorable outlook. The report highlighted: "The majority of respondents are optimistic about the outlook for their business…This should provide a solid base for the U.S. beer and spirits markets to continue to grow strongly in the second half of the year." Moreover, the upcoming holiday season is also expected to give a boost to the alcohol industry.

4 Alcohol Stocks to Buy

Banking on this encouraging environment, investing in financially strong stocks from the alcohol industry might be a prudent option. Hence, we have selected four alcohol stocks that carry a Zacks Rank #2 (Buy) as stocks with a Zacks Rank #1 (Strong Buy) or #2 are poised to be good investment options. You can see the complete list of today’s Zacks #1 Rank stocks here.

Constellation Brands Inc. (STZ - Analyst Report) is one of the largest multi-category suppliers of beverage alcohol in the U.S. The company expects earnings growth rate of 18.3% in the current year, compared with the industry average of 5.1%.Its earnings estimate for the current year improved 1.4% over the last 30 days. Constellation Brands has an expected revenues growth rate of 12%forthe current year.

Craft Brew Alliance, Inc. (BREW - Snapshot Report) is engaged in the business of brewing, marketing and selling of craft beers in the U.S. The company has an expected earnings growth rate of more than 100% for the current year. Its earnings estimate for the current year surged 23.8% over the last 60 days.The company has an expected revenues growth rate of 5.9% for the current year.

Molson Coors Brewing Company (TAP - Analyst Report) is one of the world’s largest global brewers with a broad portfolio of over 40 brands. Its earnings estimate for the current year improved 2.4% over the last 30 days.The company has an expected revenues growth rate of 46.8% for the current year.

Anheuser-Busch InBev SA/NV (BUD - Snapshot Report) is the leading global brewer and one of the world's top five consumer products companies. Its earnings estimate for the current year improved 3.8% over the last 30 days.The company has an expected revenues growth rate of 4.1% for the current year.

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