As you’re well aware, a lot of alcoholic beverages get consumed during the holidays.
So Morningstar put together a list of booze stocks that are currently undervalued and have strong long-term outlooks. The list includes:
Anheuser-Busch InBev (BUD): Morningstar analyst Philip Gorham assigns the company a wide moat and puts fair value for the stock at $90. It recently traded at $59.
“We continue to think that the scale of the business and ABI’s strong relationships with its vendors make this a high-quality franchise,” he wrote in a commentary.
“Management's strategy is to buy brands with a promising growth platform, expand distribution, and ruthlessly squeeze costs from the business.”
Further, “AB InBev has one of the strongest cost advantages in our consumer defensive coverage and is among the most efficient operators,” Gorham said.
“Vast global scale, along with monopoly-like positions in Latin America and Africa give AB InBev significant … procurement pricing power.”
Boston Beer (SAM): Morningstar analyst Jaime Katz gives the company a narrow moat and puts fair value for the stock at $670. It recently traded at $385.
“Though much smaller than the brewing behemoths, Boston Beer is well positioned in malt categories, boasting a meaningful growth profile that mainstream beer lacks,” she wrote in a commentary.
“The firm has shown a remarkable proclivity to not only augment its portfolio in alignment with the latest growth vectors, but also to capture a disproportionate share of the economic rents generated from this growth by being one of the first movers.”
As examples, she cited Boston Beer’s pioneering activity in craft beer, cider, and more recently, hard seltzer.
Brown-Forman (BF.B): Morningstar analyst Sean Dunlop assigns the maker of Jack Daniel’s a wide moat and puts fair value for the stock at $78. It recently traded at $71.
“Brown-Forman has established itself as a stalwart in matured spirits, an enclave of the distillation industry that we view as particularly attractive,” he wrote in a commentary.
“In addition to brand recognition and distribution, companies in this industry benefit from scarcity value, the result of the consumer perception surrounding the aging of this type of alcohol and the pricing power that this begets.”
Given that, “we believe Brown-Forman’s portfolio, anchored by the Jack Daniel’s brand, boasts some of the highest cachet globally,” Dunlop said.
Constellation Brands (STZ): Katz gives the seller of Corona and Modelo a wide moat and puts fair value for the stock at $274. It recently traded at $256.
The company is “one of the most stellar brewers across our global coverage,” she wrote in a commentary. Its Corona and Modelo brands put Constellation’s Mexican beer portfolio “auspiciously at the confluence of unwavering secular and demographic trends,” Katz said.
“With an enviable growth profile and best of breed margins, we have confidence that the [company’s] beer business can thrive even amid an evolving industry landscape.”
Constellation “continues to expand its addressable market by widening the gamut of categories in which it competes,” Katz said.
