In this article we discuss 10 best beverage stocks to buy now. The beverage industry is going through a consequential shift in the midst of the coronavirus pandemic, as companies worldwide scramble to meet the rising demand of liquor, soft drinks, hard seltzer and other beverages in the e-commerce channels. The beverage industry has a strong growth potential, and the best way to take profits from the industry is to invest in the right stocks. You can skip our detailed analysis of data that shows the beverage industry will boom in the coming years and jump to the 5 Best Beverage Stocks to Buy Now.
The beverage industry is a behemoth with strong growth prospects in the future amid rising sales and ecommerce penetration. According to a report by Research and Markets, the global food and beverages market is expected to grow at a CAGR of 7% from 2021 and reach $7527.5 billion in 2023. The coronavirus pandemic has proven the resilience of the beverage industry. A report from IWSR shows that as the pandemic shut down physical stories across the countries, consumers swiftly shifted to online purchasing of beverages, especially alcohol. As a result, the total value of alcohol ecommerce was expected to jump 42% in 2020 in just 10 markets to reach $24 billion.
The E-Commerce Boom
The report also noted that the U.S. is set to overtake China as the largest alcohol ecommerce market in the world by the end of 2021. The ecommerce market of alcohol jumped by a whopping 80% in 2019-2020 in the country. Beverage ecommerce platform Drizly, often known as the “Amazon of liquor,” experienced a 300% rise in its sales during the pandemic. But alcohol isn’t the only category thriving in the beverage industry.
Non-alcoholic beverages sales have posted consistent gains over the last several years. According to a January 2020 report by Nielsen, non-alcoholic beverages are worth $7 billion more than just four years ago, and $3.2 billion more in the last year alone. The report also shows that 55% of U.S. customers consume soft drinks when eating and drinking out.
Growth Catalysts and Changing Trends
Several areas of the beverage industry are showing signs of growth, which make it worth to buy 10 best beverage stocks to buy now. Carbonated soft drinks increased 16.6% for the four weeks ending May 16. Sparkling flavored water also posted a 22.7% gain in the same period. Ready-to-drink coffee sales increased more than 11%.
In the off-premise alcohol category, which is thriving especially after the coronavirus following the closure of bars and restaurants, sales jumped 26.8% in the 12-week period ending May 23. The most popular drink in the spirits category is tequila, according to Nielsen.
Consumers are preferring healthy drinks amid the coronavirus crisis worldwide, pushing beverage companies to shift their marketing and production strategies. Energy drinks remain the top-selling beverage category, with $9.2 billion worth of sales in the 52-week period ending June 27, up from $8.9 billion in 2019. Drinks with healthy ingredients such as probiotics, vitamins, protein, antioxidants, kombucha, electrolytes and energy are becoming popular. According to Michael Taylor, president of branding and retail services firm Daymon, over 80% of consumers are focusing on their diets to stay healthy, with 77% of consumers looking to lead a healthier life than pre-pandemic. As a result, 35% of consumers have started to prefer adding functional ingredients in their diet through beverages.
It’s not just the beverage industry where trends are changing. Financial markets across the board are becoming volatile and hard to predict. Even the so-called experts are struggling to stay on top of the changing market dynamics. The hedge fund industry’s reputation has been tarnished in the last decade during which its hedged returns couldn’t keep up with the unhedged returns of the market indices. On the other hand, Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 88 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that significantly underperformed the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 16. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.
Another category in the beverage industry with an explosive growth potential is hard seltzer, a drink containing carbonated water, alcohol, and fruit flavoring. According to Nielsen, hard seltzer off-premise sales quadrupled on a year-over-year basis, an increase of $900 million.
Keeping in mind this growth potential, let’s dig deeper and see the 10 best beverage stocks to buy now. We chose these stocks based on the data of 816 hedge funds we actively track, while incorporating the fundamentals and financial health of the top beverage companies.
10. Fomento Economico Mexicano SAB ADR
Fomento Economico Mexicano SAB ADR (NYSE: FMX), commonly known as FEMSA, ranks 10th on our list of 10 best beverage stocks to buy now. The Mexican company produces and sells Coca-Cola trademark beverages. The company recently said it will acquire two independent specialized distribution businesses in the United States: Southeastern Paper Group and Southwest Paper Company. The company experienced a 51% decline in net income in the third quarter, mainly due to foreign currency headwinds and the effects of the coronavirus pandemic.
Jean-Marie Eveillard’s First Eagle Investment Management owns 5,631,931 shares of FEMSA as of the end of the third quarter. The total worth of these shares is $316.46 billion. Overall, 16 hedge funds tracked by Insider Monkey are long FEMSA, as of the end of the September quarter.
9. Anheuser Busch Inbev NV
In December 2020, the company reached a deal with a group of investors led by private equity firm Apollo Global Management Inc to sell a 49.9% stake in U.S. metal container plants for about $3 billion.
Ken Fisher’s Fisher Asset Management owns 7,488,722 shares of the company, worth $403.49 million. Overall, 18 hedge funds tracked by Insider Monkey had AB InBev in their portfolios entering the fourth quarter. Broyhill Asset Management talked about BUD and ABEV in a recent investor letter:
“We also diversified our beer exposure during the quarter, adding a direct investment in Ambev (ABEV) to compliment our existing investment in Anheuser Busch Inbev (BUD). As the current environment has punished highly leveraged businesses like BUD (despite the company’s ability to generate strong and recurring cash flow), the opportunity to own ABEV, with net cash on its balance sheet and the highest returns on capital in the industry—at a lower multiple than its parent—was too good to pass up.
Together, these names represent roughly 20% of our capital today. Given their cheap valuations, combined with the fact that beer and tobacco consumption has historically increased during recession, one could argue that we should have even more exposure to these Sin Stocks. In principle, we agree, and given the opportunity, we’d be happy to increase our positions. But in the interim, we are highly sensitive to maintaining balance in the portfolio. At one end, we own high quality, defensive businesses that should fare well in almost any environment. At the other end, we’ve begun building a portfolio of more cyclical businesses, positioned to rebound sharply and gain share once the clouds clear. We discuss a few of these investments below.”
8. Diageo plc
Diageo plc (NYSE: DEO) ranks 8th on the list of 10 best beverage stocks to buy now. Diageo is one of the world’s largest distillers having presence in 180 countries. Some of the company’s famous brands include Black & White, Buchanan’s, J&B, Johnnie Walker, Windsor, Smirnoff and Captain Morgan. In September 2020, the company gave a positive business update for the first half of fiscal 2021, citing a worldwide recovery and strong demand in off-premise channel.
Tom Gayner’s Markel Gayner Asset Management is one of the 19 hedge funds having stakes in Diageo, as of the end of the third quarter. The fund owns 1,349,800 shares of the company, worth $185.81 million.
ADM ranks 7th in our list of the 10 best beverage stocks to buy now. Archer-Daniels-Midland Co (NYSE: ADM) is a major food and alcoholic beverages company. The stock was upgraded in November by Credit Suisse to Neutral from Underperform. The firm also increased its price target to $46 from $44. In the third quarter of 2020, Archer-Daniels posted a non-GAAP EPS of $0.89, above the analysts’ forecasts of $0.17. Revenue in the period came in at $15.13 billion, lower than the Street’s estimate of $1.56 billion.
As of the end of the third quarter, 26 hedge funds tracked by Insider Monkey held stakes in Archer-Daniels, compared to 28 funds a quarter earlier. The net worth of these investments is $673.3 million.
Molson Coors Beverage Co Class B (NYSE: TAP) ranks 6th on the list of 10 best beverage stocks to buy now. The company is famous for drinks like Coors Light, George Killian’s Irish Red, Miller High Life and Coors Banquet. Jefferies on Jan. 4 upgraded Molson Coors stock to Buy from Hold. The firm believes that a recovery is not reflected in the company’s current stock price. Jefferies analyst Kevin Grundy also bumped his price to $57 from $36.
Cliff Asness’ AQR Capital Management is one of the 33 hedge funds in our database having stakes in Molson Coors, as of the end of the third quarter. The hedge funds owns 1,456,356 shares of the company, worth $48,875. Argosy Investors talked positively about TAP in its 2020 Q3 investor letter:
“I purchased shares of Molson Coors (TAP) during the third quarter, and this mid-tier brewer is valued attractively at less than 8x EBITDA, at the low end of historical multiples.
I do not expect a lot of growth from this investment, but it is challenging to find fairly-priced resilient businesses in the current environment, and if there is one thing I can count on is that people will drink beer, especially during a pandemic. The biggest risk is obviously that they may choose to drink other types of beer, specifically craft beers. While the company’s balance sheet is a little stretched, I believe the company is focused on reducing debt, most noticeably in their decision to suspend their dividend for 2020. I do not believe this investment will provide explosive returns for us, but I believe it is an attractive alternative to cash. The company can pay down significant amounts of debt fairly quickly and deliver reasonable equity returns by doing so.
Additionally, the company recently got into the hard seltzer game, specifically through their Vizzy and Coors Seltzer products. The author took the opportunity to sample these products over the Labor Day holiday, and came away impressed with the decent flavors, and subsequent conversations with millennials and particularly millennial females who had tried the product reflected positive early feedback for these offerings. Finally, Molson Coors announced a partnership with Coca-Cola to develop their Topo Chico hard seltzer product. The hard seltzer category is growing mid-teens percent annually right now, and I believe Molson Coors has enough irons in the fire here to make a decent impact on their top and bottom lines. Any amount of unexpected growth from these products would be a cherry on top to our investment case.”
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Disclosure: No positions. 10 Best Beverage Stocks To Buy Now is originally published at Insider Monkey.