In this piece, we will take a look at beer loses fizz as spirits gain popularity: Top 10 stocks to buy.
With 2024 heading to a close, the alcoholic beverages industry is also changing. Data from the Distilled Spirits Council (DSC) shows that spirits continue to gain over beer, which has traditionally been the go-to alcoholic beverage of choice. In 2023, spirits held more than 42% of the total market to mark a 13 percentage point gain since 2000. These shifts are coming at a time when Americans’ attitudes relating to alcohol are significantly changing. For instance, a very detailed survey from Gallup asked participants a plethora of questions surrounding their drinking habits and their perceptions of alcohol’s role in society.
When compared to participants surveyed in 2001, when 22% of participants viewed alcohol as good for health, this figure dropped by more than half in 2023 and sat a two decade low of 10%. Similarly, confirming the DSC’s data, while 47% of participants had drank beer the most often in 1992, not only did this percentage drop to 37% in 2023, but the figures for wine and liquor jumped to 29% and 31% from 27% and 21%, respectively.
29% drank no alcohol in the past week in 1987, while 33% reported the same in 2023. Other research also shows that while 72% of 18 to 34 year olds had reported having a drink in the past year between 2001 and 2023, this dropped to 62% as of 2024. This suggests that the trend for lower alcohol consumption is driven primarily by young people as the percentages increased for both 35 to 54 year olds and those aged above 55.
Building on this, while the dropping alcohol use might intuitively sound bad for the liquor industry as it contributes to lower sales, the reality might be a bit different. This is because lower intensity of alcohol consumption leads to better health outcomes and more long term business for the alcohol companies. Additionally, with the rising demand for spirits, younger drinkers tend to be focused on sweeter drinks like tequila or its close cousin Mezcal. This is because while the sales of America’s favorite spirit, vodka, remained flat in 2023, tequila/mezcal sales grew by 7.9% annually to sit at $6.5 billion and edge close to vodka’s dominant market position of $7.2 billion.
Additionally, Americans continue to be driven by convenience too, since the fastest growing spirits category is premixed cocktails or ready to drink (RTD) alcohol. While this category’s share of the market is relatively smaller at $2.8 billion, it jumped by 26.8% annually and was the only spirit with a double digit percentage market share gain.
While it’s possible that the drop in alcohol consumption is because of a health conscious population (with 39% believing in 2023 that alcohol is bad for health, up from 27% in 2001), it’s also possible that other recreational products such as cannabis and psychedelics are taking over. For cannabis, 2024 has proven to be a pivotal year as more users get to try it due to growing legalization and decriminalization. On this front, data gathered by the Substance Abuse and Mental Health Services Administration (SAMHSA) provides insights. The SAMSA’s 2019 National Survey on Drug Use and Health revealed that 50.8% or 139.7 million people reported drinking alcohol. The same survey for 2022 saw this figure drop to 48.7% or 137.4 million people. Crucially, 54.3% or 18.3 million aged 18 to 25 had drank within the past month in 2019, while in 2022, this figure was 50.2% or 17.5 million.
So, it’s clear that alcohol use has dropped in between 2019 and 2022. For marijuana, its use is growing on the other hand. In 2019, 35.4% of the same age group were marijuana users, which was significantly higher than the 29.8% in 2002. Overall, 17.5% or 48.2 million people used marijuana in the past year in 2019, up from 11% in 2002. In 2022, this figure had jumped to 61.9 million people. Another key study that directly analyzes whether marijuana is gaining over alcohol in popularity comes from the Addiction Journal. It analyzes the SAMHSA’s data between 1992 and 2022 to report a 15x per capita rate increase in cannabis use.
Numerically, 17.7 million people reported using cannabis on a daily or near daily basis in 2022, which was three million higher than the 14.7 million for alcohol use. Similarly, the intensity of cannabis use was higher as the median cannabis user reported using 15 to 16 days in the past month while the median drinker drank for 5 to 6 days.
To sum it up, right now, alcohol use is dropping, younger drinkers prefer sweeter drinks and spirits over vodka and beer, and the rate and scale of cannabis use are increasing. With these details in mind, let’s look at the top ten alcoholic beverage stocks to buy.
Photo by John Fornander on Unsplash
Our Methodology
To make our list of the top ten alcohol stocks to buy, we ranked the 40 most valuable alcoholic beverage companies that trade on the NYSE and NASDAQ by the number of hedge funds that had bought the shares during Q1 2024. Out of these, the stocks with the highest number of hedge fund users were chosen.
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).
10. SNDL Inc. (NASDAQ:SNDL)
Number of Hedge Fund Investors in Q1 2024: 7
SNDL Inc. (NASDAQ:SNDL) is a Canadian liquor store and cannabis company. It operates its own branded liquor stores, which provides it greater visibility into consumer trends and allows SNDL Inc. (NASDAQ:SNDL) to tailor its sales to changing tastes such as the preferences for spirits over beer. Additionally, since it sells a variety of cannabis products such as vapes and flowers, SNDL Inc. (NASDAQ:SNDL) is also able to profit from the growth in cannabis use that might end up replacing alcohol entirely. However, since SNDL Inc. (NASDAQ:SNDL) is a small company (with total assets of C$1.4 billion and cash of $201 million) it is more vulnerable to economic downturns than some of the larger companies on our list. It hasn’t turned a profit in its last four financial years either, and its exposure to the cannabis industry particularly through vapes means that SNDL Inc. (NASDAQ:SNDL) might lose profitable products in case health regulators introduce more regulations.
SNDL Inc. (NASDAQ:SNDL)’s management commented on its liquor retail business during the Q2 2024 earnings call where it shared:
“Net revenue in the second quarter of 2024 for this segment was $114.6 million, a decline of $11 million or 7% compared to the prior year. This decline was driven by a [inaudible] Eastern time in between March and April when compared to 2023, but mostly due to market slowdown as they’re probably seen being reported by most liquor manufacturers in North America. We believe this is not indicative of structural challenges in the industry, but due to short-term consumption dynamics. Despite this macro headwinds, we continue to expand gross margin, reaching 25.4% in the second quarter, an improvement of 210 basis points compared to last year.
This was achieved through multiple initiatives including a 10% growth of our margin accretive private label, procurement productivity, and data sales monetization. As a result of this margin expansion, the segment’s gross profit and operating income delivered low single-digit growth versus the same quarter of 2023.”
9. Ambev S.A. (NYSE:ABEV)
Number of Hedge Fund Investors in Q1 2024: 14
Ambev S.A. (NYSE:ABEV) is one of the biggest brewers in the world which enjoys a considerable market share and brand recognition through its products such as Corona and Budweiser. This means that the firm has an established market position, and the pressure on it to grow is less when compared to upstarts. At the same time, as we highlighted in the introduction to this piece, spirits are rapidly gaining share over beer, which means that Ambev S.A. (NYSE:ABEV) might see its volume decline in the future. Its best known brands are beer, and the company might benefit from the fact that some of the biggest markets for Corona are Argentina and Brazil. Ambev S.A. (NYSE:ABEV), like other liquor and alcoholic beverages stocks, depends on inflation for its stock performance and the lower inflation is the higher its volumes shipped are.
During its Q2 2024 earnings call, Ambev S.A. (NYSE:ABEV)’s management remained optimistic about its brand strengths and shared:
“Corona in the super premium is the brand with the highest brand health to market share ratio in the market. And it relates to values like balance, enjoying life, traveling and unwinding. On top of that it has a distinctive packaging, a liquid that is made with 100% natural ingredients and is more refreshing. Spaten in premium is one of the highest growing brands of the market. And it has very clear beer credentials, which positions it as a beer authority in Brazil. It has been selected as Brazil’s best pure malt beer by a group of beer specialists in a survey from O Estado de Sao Paulo newspaper. Budweiser is the most aspirational core plus brand in the market. Through its global events like the World Cup and international music festivals such as Lollapalooza and Tomorrowland it is seen as an iconic and youth brands.”
8. The Duckhorn Portfolio, Inc. (NYSE:NAPA)
Number of Hedge Fund Investors in Q1 2024: 14
The Duckhorn Portfolio, Inc. (NYSE:NAPA) is a wine company headquartered in Saint Helena, California. It is one of the largest luxury wine brands in America, and sells Classic Chardonnay, Merlot, and other wines. The Duckhorn Portfolio, Inc. (NYSE:NAPA) operates in a highly fragmented industry, which is proliferated by countless players. This means that the firm has to consistently be on its toes and invest heavily in marketing to ensure that not only does it gain market share but continues to hold it as well. Additionally, since The Duckhorn Portfolio, Inc. (NYSE:NAPA) only sells wine, and high end wine at that, the firm is more vulnerable to inflationary trends than other alcohol stocks. This makes it unsurprising that the stock is down 34% year to date, and The Duckhorn Portfolio, Inc. (NYSE:NAPA) is also investing in revamping its distribution network by focusing on wholesale distributors. While this can help it distribute significant product volumes, it also leaves open the chance of a significant channel glut in case of demand slowdown.
Merion Road Capital briefly commented on The Duckhorn Portfolio, Inc. (NYSE:NAPA) in its Q2 2024 investor letter where it shared:
“During the quarter I exited our position in Duckhorn (“NAPA”) at a loss. Fundamentals came in worse than I expected and I ultimately realized that because the upside was less than my prior expectations, it did not justify current uncertainty.”
7. MGP Ingredients, Inc. (NASDAQ:MGPI)
Number of Hedge Fund Investors in Q1 2024: 22
MGP Ingredients, Inc. (NASDAQ:MGPI) is the first pure play spirits company on our list. It sells both distilled spirits and branded spirits. Since it is a pure play spirits company, MGP Ingredients, Inc. (NASDAQ:MGPI) can focus on all kinds of products which enables it to better target the highly growing spirits industry. Its products are primarily divided into aged and new distillates, with each category offering its benefits and drawbacks. Aged products are sold on the spot market and have higher, which means that MGP Ingredients, Inc. (NASDAQ:MGPI) can recover its working capital quickly compared to new product sales as contracts for these are booked for longer time periods. However, the latter comes with higher margins, which means that investor sentiment is mixed especially during a high inflation market. To navigate investor pessimism surrounding growth in low margin new distillate sales, MGP Ingredients, Inc. (NASDAQ:MGPI) shut down a plant earlier this year to lower its costs. Finally, the firm’s reliance only on the spirits industry also means that it remains vulnerable to a downturn in the sector.
Ariel Investments mentioned MGP Ingredients, Inc. (NASDAQ:MGPI) in its Q2 2024 investor letter. Here is what the firm said:
“Also in the quarter, we initiated a new position in leading spirits manufacturer, MGP Ingredients, Inc. (MGPI). After years of successfully developing products for third parties, MGPI entered the branded spirits business. Leveraging its scale and know-how, MGPI is turning existing relationships into growth stories by acquiring and scaling niche premium brands. A recent strategic decision to shut down a distillery in Kansas and concerns around peak whiskey demand amidst a challenging macro environment have placed pressure on the stock. However, we believe the core business is stable and expect branded spirit acquisitions to drive top-line growth and expand margins longer-term.”
6. The Boston Beer Company, Inc. (NYSE:SAM)
Number of Hedge Fund Investors in Q1 2024: 26
The Boston Beer Company, Inc. (NYSE:SAM), as the name suggests, is a beer company headquartered in Boston. It has a diversified product portfolio which also includes flavored malt and hard seltzers. This means that if the beer market continues in its downturn, The Boston Beer Company, Inc. (NYSE:SAM) will be able to shift away to other alcoholic products particularly sweet drinks that are popular with young users. It operates primarily through a warehouse distribution model, which lets it ship large volumes but also leaves it vulnerable to the effects of bullwhip fluctuations within the supply chain. This can result in The Boston Beer Company, Inc. (NYSE:SAM) producing products at a time when distributors are already stock – leading to high working capital costs that are difficult to recover.
SouthernSun Asset Management commented about The Boston Beer Company, Inc. (NYSE:SAM) in its Q1 2024 investor letter. Here is what the firm said:
“The Boston Beer Company, Inc. (SAM), a leading provider of alcohol beverages, was one of the top detractors in the SMID Cap strategy in the first quarter. The company reported a modest revenue decline (on a comparable basis) for 2023, with strong growth in the Twisted Tea brand offset by declines in the Truly brand. Margins expanded during the year, including in the fourth quarter, as the company benefited from operational margin improvement initiatives, as well as deflation in freight costs. The company expects slight sales growth at the midpoint of its guidance and continued margin expansion in 2024. Concurrent with its fourth quarter earnings announcement, the company announced the retirement of CEO Dave Burwick and his replacement with former Nike executive and current SAM board member Michael Spillane. We expect no change in the company’s strategy or its capital allocation from this leadership change. In the near term, we believe the company will remain focused on sustaining Twisted Tea’s growth, turning Truly volume trends, improving operations to enhance gross margins, and thus providing more funds to invest in its core assets as a company – its brands and its sales force. Overall, we remain confident management’s efforts and investments are likely to produce profitable growth that will reward investors over time.”
5. Brown-Forman Corporation (NYSE:BF-A)
Number of Hedge Fund Investors in Q1 2024: 30
Brown-Forman Corporation (NYSE:BF-A) is one of the largest and oldest alcoholic beverage companies in the world. It is a diversified spirits company that sells whiskey, tequila, gin, and rum. This means that the Brown-Forman Corporation (NYSE:BF-A) is positioned well to capitalize on the growing spirits market in America. However, its shares are down by 23% year to date, hurt particularly by Brown-Forman Corporation (NYSE:BF-A)’s reliance on its well known whiskey, Jack Daniels. Since Jack Daniels is the firm’s best selling and most popular product, the stock performance is tied to the whiskey’s performance. During Brown-Forman Corporation (NYSE:BF-A)’s second quarter, its Jack Daniels sales dropped by 6% to build on the previous quarter’s 6% sales drop. However, the growth in RTD spirits which we talked about in the intro was also evident in the firm’s product mix, with RTD sales growing by 2% and helping Brown-Forman Corporation (NYSE:BF-A) navigate a tough market through product differentiation.
Madison Mid Cap Fund mentioned Brown-Forman Corporation (NYSE:BF-A) in its Q2 2024 investor letter. Here is what the firm said:
“We also made two adds and two trims during the quarter. We added to Brown-Forman Corporation (NYSE:BF-B) and Thor Industries. Brown-Forman is facing a slight decline in sales, which has elevated investor concern over risks to demand from increased competition and changes in consumer tastes. We believe the long-term outlook for the category and the Jack Daniels brand remains solid.”
4. Diageo plc (NYSE:DEO)
Number of Hedge Fund Investors in Q1 2024: 30
Diageo plc (NYSE:DEO) is another diversified alcohol company that operates in both the spirits and the beer industry. This allows it a nimble business model which can adapt to the growth in either industry. Additionally, the firm is also keeping an eye on the RTD sector’s growth, and it announced a new RTD lineup in October 2023 and expanded it to the UK earlier this year. Like other large alcohol stocks, Diageo plc (NYSE:DEO) benefits from its strong brand recognition and enjoys a special place due to its well known vodka and spirit brands like Smirnoff and Johnnie Walker. At the same time, since it operates primarily in the premium market, Diageo plc (NYSE:DEO)’s stock is vulnerable to economic headwinds and primarily inflation. Conversely, the shares can benefit if investors perceive the economic outlook is improving, and Diageo plc (NYSE:DEO) also benefits from a stock market share in emerging markets. These can provide it with more room to grow in the future due to economic growth in these countries.
Argosy Investors mentioned Diageo plc (NYSE:DEO) in its Q2 2024 investor letter. Here is what the firm said:
“Diageo (DEO) was likewise added to the portfolio this quarter. We don’t believe we have any special insight into this well-known spirits maker, but believe DEO is capable of providing long- term attractive returns and became priced at a level where we felt we were taking less risk in the short term as well. Owner and marketer of the Johnnie Walker Scotch, Tanqueray gin, Smirnoff vodka, Guinness beer, and Baileys liqueur brands, plus a stable of emerging brands, Diageo is a fixture any time alcohol is being served. We believe we’re paying a high-teens multiple of quite stable and growing earnings, and benefit from a healthy 3% dividend in the interim. We won’t wow anyone with our analysis on this one, but when everyone else is rushing to buy Nvidia, our exposure to alcohol should help with any hangovers in the rest of the market.”
3. Molson Coors Beverage Company (NYSE:TAP)
Number of Hedge Fund Investors in Q1 2024: 36
Molson Coors Beverage Company (NYSE:TAP) is a diversified beer company that sells products in all price categories. This provides it an edge in a tough market, where consumers can choose to buy less pricey products. At the same time, since it’s primarily a beer company, Molson Coors Beverage Company (NYSE:TAP) stands to lose quite a bit if the current trends toward spirits continue. Therefore, it’s unsurprising that its shares fell by 9.9% in April after the firm’s Q1 report revealed that it was taking a cautious outlook for the rest of the year and did not increase its guidance. These results came after data showed that Molson Coors Beverage Company (NYSE:TAP) lost market share in April. Since it’s a large and established company, investors primarily value the firm based on its volume shipped and its cost control. Any trouble in these areas can create headwinds for the shares, and for Molson Coors Beverage Company (NYSE:TAP), the recent market share losses are particularly worrying as its competitor AB-INBEV continues to recover from the political controversy surrounding its Bud Light beer.
Molson Coors Beverage Company (NYSE:TAP)’s management shared during its Q2 2024 earnings call that it aims to maintain its guidance for the year. Here is why:
“In the second quarter, we essentially held our top line and grew our bottom line while cycling a very difficult year-over-year comparison. If you recall, the second quarter of 2023 was our strongest second quarter net sales revenue since the 2005 Molson and Coors merger.
Consolidated net sales revenue was down 0.1%. Underlying pretax income grew 5.2%, and underlying earnings per share grew 7.9%, while we continue to invest behind our brands globally heading into peak season. We also accelerated the pace of share repurchases for the quarter given compelling valuation as we see it, amid the strong performance of the business and our confidence in our long-term algorithm. Contributing meaningfully to our results was our EMEA & APAC business due to favorable net pricing, premiumization and brand volume growth. For the first half of the year, we increased net sales revenue by 4.2%, underlying pretax income by 20.4% and underlying earnings per share by 23.8%. While this is a very strong performance year-over-year, there are a few timing factors that will impact us in the third and fourth quarters, which is why we are maintaining our guidance for the full year.”
2. Anheuser-Busch InBev SA/NV (NYSE:BUD)
Number of Hedge Fund Investors in Q1 2024: 36
Anheuser-Busch InBev SA/NV (NYSE:BUD) is one of the biggest beer companies in the world, with close to five hundred beer brands in its portfolio. Similar to its beers like Molson Coors, Anheuser-Busch InBev SA/NV (NYSE:BUD)’s performance depends on its ability to hold market share, ship volumes, keep costs under control, and grow market share in emerging markets. Since it has managed to recover well from the Bud Light controversy and actually gained market share as of late, Anheuser-Busch InBev SA/NV (NYSE:BUD)’s stock is down by just 5.5% year to date and stemmed losses when compared to Coors. Additionally, while the firm’s growth is relatively flattish in the US, it is growing aggressively in countries like Colombia, Brazil, and South America. Anheuser-Busch InBev SA/NV (NYSE:BUD) benefits from its ability to use its scale to expand globally, and the stock’s performance should depend on this to a large extent.
Anheuser-Busch InBev SA/NV (NYSE:BUD)’s management commented on its US beer performance during the Q2 2024 earnings call. Here is what the firm said:
“In the U.S., the beer industry remained resilient, gaining share of total alcohol by value in the off-premise. Our beer market share was flattish as we cycled a challenge comparable in April, while we gained volume share of the industry in May and June. Our improved market share trend, ongoing premiumization and productivity initiatives drove EBITDA growth of 17.5% with a margin improvement of approximately 500 bps. The rebalancing of our portfolio for growth continued with 45% of our revenues now coming from our above core beer and beyond beer portfolio.”
1. Constellation Brands, Inc. (NYSE:STZ)
Number of Hedge Fund Investors in Q1 2024: 47
Constellation Brands, Inc. (NYSE:STZ) is another diversified alcohol company that operates in the beer, wine, and spirits markets. This provides it a diversified market which allows it to play either the beer or the spirits market depending on the broader conditions. At the same time, even though beer is being outpaced by spirits overall in growth, Constellation Brands, Inc. (NYSE:STZ)’s beer division has been the star of its show and has led the stock to hedge losses this year since it is down just 2% year to date. This is mostly due to Constellation Brands, Inc. (NYSE:STZ)’s beer depletions (units sold to customers at the retail end of the supply chain) stood at 6.4% during its June quarter, which outpaced analyst estimates of 6%. This metric is key for sizeable companies like Constellation Brands, Inc. (NYSE:STZ), since it indicates their supply chain flow and the ability to ship products to consumers instead of having them sit on shelves. Spirits and wines typically struggle in an inflationary environment, and Constellation Brands, Inc. (NYSE:STZ) benefits from diversity with investor focus on beers during a slow economy and vice versa.
Constellation Brands, Inc. (NYSE:STZ)’s management commented on its beer business during the Q1 2025 earnings call:
“Our Beer business grew shipments by 7.6% in Q1 on a reported basis, while depletions were up 6.4% excluding the impact of the craft brand divestitures in June of last year. It is important to reiterate that this mid to high-single digit level of volume growth was fully aligned with the expectations we shared for our fiscal year, as well as our medium-term algorithm. So, despite the volatility of short-term scanner data, be it due to weather, timing of holidays or other non-structural factors or the performance of the broader beer category, be that due to dynamics affecting other brands or segments, our Beer team once again consistently delivered on our targets and objectives. Now honing in on the performance of our largest brands, Modelo Especial grew depletions by nearly 11% and upheld its position as the top share gainer, extending its lead as the number one beer brand in U.S. tracked channels.
Importantly, Modelo Especial also continues to grow household penetration, rising to become the number three brand on this metric at the end of May, with a 2.4 percentage point increase on a 52 week basis. While Corona Extra depletions declined just over 1% in Q1, we continue to expect, we can deliver low-single digit growth from this brand. Importantly, Corona Extra remains a top five beer brand in the U.S. and it continues to gain share in the category. Pacifico delivered remarkable depletion growth of over 20% and was the number four dollar share gainer across the total beer category. Our Modelo Chelada brands delivered an increase of more than 5% in depletions and we are excited to continue to build on that momentum in fiscal ’25 with two new flavors, Fresa Picante and Negra con Chile.”
STZ is the most popular alcohol stock with hedge funds as the alcohol market changes. But our conviction lies in the belief that some 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 STZ 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.
