Summer is all but over, but that does not mean people will stop drinking. Today, we’re going to look at a few alcohol and beer stocks that are still poised to gain as the seasons turn.
The fall often marks a return to indoor activities for many people in the U.S.—especially as football, and the NFL season in particular, returns to television screens around the country.
Although game days and colder temperatures might mean more drinking, the industry is in the midst of some trying times.
American’s consumed less alcohol year-over-year in 2016, according to an IWSR report—which marked the first overall dip since 2011. Goldman Sachs (GS - Free Report) recently projected that the total U.S. beer market will decline by 0.7% in 2017, and the firm downgraded Boston Beer Company (SAM - Free Report) and Constellation Brands (STZ - Free Report) stock accordingly.
However, alcohol sales aren’t stopping outright, they are shifting, and the companies we will look at today are ready to gain based on more niche drinking trends.
Overall, beer lost 10% of its market share to wine and spirits between 2006 and 2016. Spirits made up 35.9% of the industry in 2016, while wine grabbed 17.1%, according to Fortune. Tequila consumption jumped by 7.4%, while bourbon climbed 6.4% last year. Vodka, gin, scotch, and wine also all grew.
And beer still accounts for 47% of the market, with the craft beer and Mexican imports segments experiencing growth in 2016.
So now let’s take a look at a few companies with strong Zacks Ranks and the ability to profit from these new trends.
Heineken N.V. (HEINY - Free Report)
Heineken N.V. is currently a Zacks Rank #1 (Strong Buy). The Netherlands-based brewing giant has a market cap of $59 billion and has already experienced a strong first half of the year.
Heineken’s organic revenues grew by 5.7% in the first half of 2017. The company’s operating profit jumped 11.8% to $2.12 billion, which beat Wall Street expectations. Heineken’s consolidated beer volume rose 2.6%, while the Heineken brand itself saw a 3.9% increase in volume.
The Dutch power brews Europe's top-selling lager, as well as others, including Amstel, Sol, Tecate, and Red Stripe. Heineken sold over 8.5 million barrels in the U.S., which is more than double what Boston Beer sold.
Heineken also recently made a major investment in up and coming California-based Lagunitas Brewing Co., as well as other craft beer makers. The company’s stock price currently sits less than a dollar bellow its all-time high of $52.44 a share, and with a better-than-industry average forward PE of 22.36, Heineken may still be undervalued among its beer-making peers.
Diageo plc (DEO - Free Report)
Diageo plc is currently a Zacks Rank #1 (Strong Buy) with a massive $83 billion market cap. The multinational spirits company has experienced a strong 2017.
The company, which owns Johnnie Walker, J&B, Gordon's, Baileys, Guinness and more, has seen its stock price soar from $109.61 a share at the end of last August to rest just below its all-time high of $134.49 a share today. Over the last month, shares have hit multiple new 52-week highs.
Over the last thirty days, we’ve seen one analyst increase their earnings estimate for this year and next year. The 2017 figure was revised from $5.95 a share to $6.14 a share, while full-year 2018 estimates jumped to $6.71 per share from $6.41 per share.
The company also owns Smirnoff, Cîroc, Ketel One, Don Julio, and Tanqueray, which are all brands that could be poised to grow further as the spirit explosion continues in the U.S.
Pernod Ricard SA (PDRDY - Free Report)
Pernod Ricard SA is currently a Zacks Rank #1 (Strong Buy), and the French-based liquor and spirits power is coming off a solid first half of the year.
The company has a forward PE ratio of 20.26, which is better than the industry average. Also, the company’s share price has increased by more than 19% over the past year, making it one of the hotter stocks in this space. Pernod Ricard also pays its shareholders a respectable 1.06% dividend, and company holds a price to cash flow ratio of 20.75.
Pernod Ricard owns Havana Club, Ballantine's, Malibu, The Glenlivet, Chivas Regal, Jameson and Absolut Vodka, as well as multiple wine brands, which means it is also positioned to cash in on America’s cocktail boom.
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