We recently compiled a list of the 8 Stocks on Jim Cramer’s Radar. In this article, we are going to take a look at where Diageo plc (NYSE:DEO) stands against the other stocks on Jim Cramer’s radar.
Jim Cramer, host of Mad Money, recently discussed some of the significant challenges the alcohol industry is facing. He pointed out that as the end of January approaches, the wine and spirits industry might be hoping for a quick resolution to what he described as a “disaster of a month,” caused by “Dry January.”
He questioned whether the slowdown in alcohol consumption during this month would continue into February, admitting that he wasn’t sure, but expressing concern that the industry could be facing deeper problems. One of Cramer’s major concerns was that most alcohol companies have not acknowledged the full extent of the difficulties they may be facing.
“They say we’re experiencing a post-COVID normalization because of excessive alcohol consumption during the pandemic. That’s why I say they’re holding their breath to see if the mocktails and the zero-alcohol beers quickly disappear by Saturday when January comes to an end. Look, I think these companies are about to have a rude awakening when dry January turns into drier-than-expected February and then we might even spiral from there.”
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Cramer highlighted several key factors contributing to the decline in alcohol consumption. He first noted the rise of cannabis, which has become much more affordable in many states, offering a legal high without the risk of a hangover. He pointed out that we are no longer in the era of Smokey and the Bandit and suggested that cannabis could be stealing market share from alcohol.
Secondly, Cramer referenced a recent warning from the U.S. Surgeon General about the links between alcohol consumption and the increased risk of various cancers, including breast and liver cancer. He emphasized that there is no safe level of alcohol consumption when it comes to cancer prevention, which he said could have a significant impact on health-conscious consumers. He added:
“Third, young people just don’t like to drink as much as they used to. Some profess health worries. Others know that the liquor companies jacked up prices during the pandemic and now refuse to take them down. Fourth, ubiquitous GLP-1 weight loss drugs can stop your craving for alcohol in its tracks.”
He mentioned that studies indicate heavy drinkers tend to reduce their alcohol consumption when they start using these medications. Taken together, Cramer argued that these trends represent a significant challenge for the alcohol industry.
Despite these challenges, Cramer suggested that there is still hope for the alcohol business, but it will require innovation. He emphasized the importance of creating new and exciting drink options that stand out in a crowded market. Value pricing, he said, will also be crucial. He stressed that the days of endless price hikes without any pushback or creativity are over. Cramer expressed confidence that social drinking would remain part of people’s lives, but he warned that alcohol could end up in the same category as tobacco if companies do not adapt.
“Let’s drop the normalization wrap, please. This is not normal. The liquor companies need to be clever, thoughtful, and exciting, or they should just go find another business.”
Our Methodology
For this article, we compiled a list of 8 stocks that were discussed by Jim Cramer during the episode of Mad Money on January 29. We listed the stocks in the order that Cramer mentioned them. We also provided hedge fund sentiment for each stock as of the third quarter of 2024, which was taken from Insider Monkey’s database of 900 hedge funds.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A close-up of bottles of whisky and other alcoholic beverages from a winery.
Diageo plc (NYSE:DEO)
Number of Hedge Fund Holders: 26
Calling Diageo plc (NYSE:DEO) stock “horrendous”, Cramer remarked:
“Diageo’s been a horrendous stock, befits a company that makes the Johnnie Walker and all his cousins, the Captain, Don Julio, Tanqueray, Casamigos, ugh, Ketel One, Crown Royal, and Bulleit.”
Diageo (NYSE:DEO) produces, markets, and sells a diverse range of alcoholic beverages, including spirits, beer, and non-alcoholic products, under various well-known brands. As Cramer discussed alcohol stocks in December 2024, he said:
“If we see some signs that younger people are drinking more or the GLP-1s aren’t having as much of an effect or impact on alcohol, then I’ll happily change my mind on both Brown-Forman and Diageo. But until then, you know what? I got to stay on the sidelines.”
It is worth noting that Oakmark Funds stated the following regarding Diageo plc (NYSE:DEO) in its Q4 2024 investor letter:
“Diageo plc (NYSE:DEO) is a global producer, distributor and marketer of premium drinks with more than 200 brands and sales in nearly 180 countries. The U.K.-based holding company’s portfolio includes leading brands, such as Johnnie Walker, Guinness, Don Julio, Crown Royal, Smirnoff, Baileys, Casamigos and Captain Morgan. As a market leader, Diageo’s scale provides meaningful competitive advantages in terms of distribution and marketing, which enables the company to invest more than its peers while still generating strong returns on capital. In addition, we like that the company’s portfolio is well diversified by geography and category, which helps mitigate against earnings volatility related to economic cyclicality and shifting consumer preferences. Industry destocking and what we believe is temporary weaker demand have weighed on the share price recently, which provided an attractive re-entry point to invest in this dominant beverage company at a below-average price.”
Overall DEO ranks 3rd on our list of the stocks on Jim Cramer’s radar. While we acknowledge the potential of DEO as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than DEO 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 was originally published at Insider Monkey.