Buy This, Not That: The Buzz on These 5 Beverage Stocks

Shah Gilani|February 28, 2024

This week’s Buy This, Not That video comes to you from the Investment U Conference in beautiful Ojai, California.

And while I’m here, wining and dining with subscribers… there’s no better theme to share with you than wine and spirits!

That’s right… I’ve been doing my homework this week and have five alcoholic beverage stocks to look at.

They’re some of the biggest of the bunch… with huge global brands and good margins…

But their debt and small dividends might leave a bad taste in investors’ mouths.

So are they BUYs or NOT?

You can get all the tasty details in today’s video.

Click on the image below to check it out.

 

Transcript

Hey everybody. Shah Gilani coming to you with your BTNT, as in Buy This, Not That.

It’s a beautiful morning. The light is a little off where I am because I’m in a hotel room at the magnificent Ojai Valley Inn and Spa in Ojai, California. I’m attending the Investment U Conference, which starts today. A lot of great speakers too, and it’s just going to be a wonderful event.

So if you are not here this year, find out next year where it’s going to be because they’re always in beautiful locations. Great speakers, everyone learns a lot. You’ll come away from these conferences with all kinds of great information, including lines of cool stocks that you’re not going to find or hear about anywhere else. So that’s where I am, and it’s kind of early morning here.

I was out last night doing some homework on what I want to BTNT today, which are liquor company stocks. So yes, did a little bit of homework and I got a lot to say about a lot of the things that we like to drink and more importantly about their stocks.

So first up, I’m going to go big. I’m going to go with Diageo, D-E-O. Now, it’s a huge company… I’m talking $154 a share. They ran around $154 and change. Big brands. You know all the brands… they’re everything. Scotch, gin, vodka, tequila, beer. Some of the brand names are Johnny Walker, Tanqueray, Smirnoff, Captain Morgan, Don Julio, Ciroc. Sorry, Puff Daddy. Casamigos. Sorry, if you don’t know the Ciroc story. Guinness, one of my favorites.

So great brands, global presence, just gigantic company. 19.67% profit margin, maybe the best in the business. So does that mean it’s a BUY because got great global brands and it’s making good money? No, it’s boring.

So you got to worry about where you put your capital. You got to wonder how is it going to work for you. And as far as Diageo, as far as D-E-O goes, I don’t get it. It’s got crazy debt. It’s git huge debt service. It has an unimpressive dividend of 2.63%. You wouldn’t want to hold it for that. On a 48% payout ratio. Stock is sloppy, just all over the place. There’s nothing that is compelling about owning Diageo here. I just don’t get it. So, love pretty much all their brands, but stock, no, not so much.

Next up, another big boy, Constellation Brands. Symbol is S-T-Z. Now, Constellation brands are Corona, Modelo, Pacifico, beers, just great portfolio of liquor also. They own the Robert Mondavi Wineries, Prisoner Wine, if you haven’t had that, that’s really a delicious wine. High West scotches, whiskeys, tequilas. So again, really broad-based and global market leader. Stock trading S-T-Z is around $247 and change.

The only good thing I can say about S-T-Z is if you look at a five-year chart, stock’s gone up. If you look at a 10-year chart, it’s gone up. But you compare that to say an Amazon or an Apple or Microsoft, you don’t get the same bang for your buck. It’s the best looking stock of the group, but I still wouldn’t buy it.

It’s got a lot of debt. $11.7 billion in debt. Cash is only $79 million on the books right now. That’s a little scary. Their levered free cash flow is good. Operating cash flow is good, but I just don’t like that mix at all. It says something to me that they’re not managing their balance sheet that well. So, yes, nice profit margin, 16%-plus. Dividend useless, 1.44%.

So what’s the point? Yes, you look at the long-term stock chart and you can say, “Well, I could have doubled my money in five years. I could have doubled my money twice in 10 years.” Maybe had you gotten in at the lows 10 years ago, had you gotten in at the lows five years ago when the stock fell off a cliff. Yes, you could look at it that way, but if your timing is such that you’re just holding, yeah, this is the only one that you would’ve probably done well holding.

Buy it now? No. It’s had a nice run and there’s no impetus to go higher. There’s no impetus for anything here to be exciting. Great company, great brands. Stock, not so much.

Next up, let’s go to the king of beer, Anheuser-Busch. Simple, Bud, B-U-D. But I’m sure you know that. Anheuser-Busch is the largest beer manufacturer by volume in the world. So, you know the brands, including Bud Light, which we know has been a problem for Anheuser-Busch. It trades around $62 a share, $125 billion market cap. Dividend is ridiculous. What’s the point? 1.5% dividend yield. Who cares?

Sorry, no. Like the beers for the most part, but don’t like the stock. It’s going nowhere. Again, you don’t buy a stock like this for this dividend because you don’t really get anything. You don’t buy a stock like this because it’s a growth stock because it’s not. You don’t buy a stock like this because it’s the value stock, because it’s not acting like a value stock.

So where’s the impetus going to come for earnings growth, for revenue growth? I don’t see it. So as much as I think Budweiser is an iconic company, Anheuser-Busch it is absolutely fantastic. I don’t need to own the stock. I’ll just drink the beer and enjoy it. So, Anheuser-Busch Bud, sorry, no.

Speaking of beers, I got asked about the Boston Beer Company, symbol is S-A-M, so you know them probably for Sam Adams beer. So Boston Beer Company, great company, great beer, other beers, of course, other brands in there. Their earnings have been going up, but their revenues have been going down. So it’s nice financial management going on there.

But as far as Boston Beer Company, I hate to say it again, it’s a no. It’s a no because at $363 plus a share, it’s expensive in dollar terms. You don’t get anything for that. Like I said, revenue’s kind of on the decline, shipping volume’s been declining. Profit margin is only 4%. And they have seen really softening performance in their Truly Hard Seltzer and Angry Orchard.

When was the last time you had an Angry Orchard, even thought about it? I had a Truly Hard Seltzer the other day when I was playing golf and the cart gal came along. They were out of the Truly Hard liquor that I like, so I got a Truly Hard Seltzer. It wasn’t bad. But stock, not so good. Don’t bother. It’s a no. So.

Last but not least, I got a wine company because I’ve been asked about it. In fact, I was asked about it the other night. It’s the Duckhorn Portfolio. Symbol is NAPA, N-A-P-A. Now Duckhorn Portfolio, you may know some of the wine brands, Duckhorn, Decoy, Goldeneye, Migration, nice wines.

But this company IPO’d in March of 2021, closed that date at $19. Shares a couple months later, got up to I think about $25. Straight downhill from there. Straight downhill. So you wouldn’t try and catch a falling knife in a company that IPO’d fairly recently; because that’s not what’s supposed to happen if it’s a solid company and you want to own, it’s supposed to be performing.

Yes, companies can have these ups and downs, but a new company like this, again, I like the wines. They’re nice. They’re not my favorites. It’s not compelling to me. The company’s just not compelling. I get the IPO. Revenues to earnings, people, they’re going the wrong way. So Duckhorn Portfolio, NAPA at $9.59, something you’re going to look at it and say, “Wow, maybe I can try and catch that falling knife.” Good luck with that. I say no.

As far as all of the liquor companies, enjoy their products because you’re not going to enjoy the stocks. That’s it. I’ll catch you guys next week. Cheers.