We recently compiled a list of the 10 Best Liquor Stocks To Buy According to Short Sellers. In this article, we are going to take a look at where Ambev S.A. (NYSE:ABEV) stands against the other liquor stocks.
Short selling is a strategy where traders profit from the decline in the price of a stock or other securities. It is when traders can borrow shares and sell them, hoping to purchase them back when they are cheaper. The strategy allows traders to capitalize on stocks or markets they feel are overvalued, giving them more opportunities to make a profit.
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Short sellers in America had a tough year in 2024, as the broader US market posted gains of over 23%, building on a gain of over 24% from 2023. The two-year uptick of 53% is the highest since the almost 66% rally in 1997 and 1998. As a result, short sellers were down $180.9 billion in last year’s mark-to-market losses, representing a decrease of approx. 15% on an average short interest of $1.2 trillion. The sectors where shorts performed the worst are, unsurprisingly, Information Technology and Communication Services, as tech stocks surged the most last year. However, the European market has recently been a popular playground for short sellers amid the region’s sluggish economic and earnings growth and political instability in France and Germany.
The alcohol sector also seems like an attractive option for short selling, especially after the recent advisory by the US Surgeon General Vivek Murthy that consuming alcohol increases the risk of at least seven types of cancer, including breast, colon, and liver cancer. The report claims that alcohol consumption in the US is directly linked to approximately 100,000 cancer cases and 20,000 deaths annually. As such, Mr. Murthy has proposed to put cancer warning labels on alcoholic beverages, signaling a shift toward more aggressive tobacco-style regulation for the sector if adopted. The Surgeon General also called to reassess the guidelines on alcohol consumption limits, so consumers can weigh the risks more accurately.
The advisory also managed to impact the financial market, sending down the stocks of several major alcohol players in the country, in some cases by over 3%. This comes at a time when the alcohol sector is already facing some major headwinds, including a downturn in sales following the pandemic boom, threats of looming tariffs, competition from alternative beverages, and the rapidly rising trend of abstinence. More and more Americans, especially the younger generations, are becoming increasingly conscious about health and wellness and saying ‘no’ to alcohol. According to the National Institute on Alcohol Abuse and Alcoholism, America’s per capita annual consumption of alcohol in 2022 was 2.5 gallons, down from 3.28 gallons in the early 1980s.
However, this shift has marked a new opportunity for the alcohol industry, which has responded by flooding the market with a wide range of low- and no-alcohol beverages. The strategy seems to be paying off, as according to Nielsen, non-alcoholic beer, wine, and spirits collectively surpassed $565 million in sales in 2023, up 35% from the year before.
There are also doubts over how effective putting warning labels on alcoholic beverages will be since ingrained habits are hard to change and similar labels have done little to curb smoking. Some experts remain optimistic. Paul Gilbert, an associate professor at the University of Iowa College of Public Health, believes that it is unlikely that people will immediately change their drinking habits following the Surgeon General’s report, but it could eventually lead to changes in how people perceive their risk.
Methodology:
To collect data for this article, we looked up the 20 Largest Publicly Traded Liquor Companies in the US and then picked out the ones with the lowest short percentage. The stocks are sorted in descending order of their short interest, as of December 13, 2024.
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A close-up on several cans of freshly brewed beer in a commercial brewery.
Ambev S.A. (NYSE:ABEV)
Short % of Shares Outstanding: 0.3%
Ambev S.A. (NYSE:ABEV), formally Companhia de Bebidas das Américas, is a Brazilian brewing company that has now merged with Anheuser-Busch InBev. With popular brands such as Skol and Brahma etc, Ambev claims to be the largest brewer in Latin America in terms of sales volumes and one of the largest beer producers in the world.
With a deep-pocket owner like Ab InBev, an extensive distribution network, and a diverse product portfolio, Ambev S.A. (NYSE:ABEV) has been resilient in both local and international markets. However, the company continues to face challenges from various macroeconomic factors including higher costs of energy, raw materials, packaging, logistics, and labor, which are putting pressure on its brewing operations across various countries. That said, the company is still winning in the premium and super premium beer segment and leading in the core and core plus segments, while also diversifying into beyond beer and balanced lifestyle brands.
Ambev S.A. (NYSE:ABEV) also remains financially strong, generating BRL 68 billion (around $11 billion) in free cash flow over the last five years, while also expanding ROIC and achieving positive EVA every year. The company has also returned over BRL 43 billion (approx. $7 billion) to its shareholders since 2020 and even recently approved a BRL 2 billion ($330 million) share buyback program, demonstrating its disciplined approach to capital allocation. Ambev also announced a dividend of $0.0414 per share in December 2024.
While maintaining a robust balance sheet and strong business fundamentals, Ambev S.A. (NYSE:ABEV) also remains committed to sustainability and has added 15 carbon-neutral plants to its footprint as part of its decarbonization plan. The company has also reduced its water usage per liter of beverage produced by over 7%.
Ambev S.A. (NYSE:ABEV) seems to be popular among big money managers as 19 hedge funds tracked by IM held shares of the company at the end of Q3 2024, with a total stake value of $522.4 million, a noteworthy 165% increase from the previous quarter.
Overall ABEV ranks 3rd on our list of the best alcohol stocks according to short sellers. While we acknowledge the potential for ABEV as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than ABEV but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.