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 Brown-Forman Corporation (NYSE:BF-B) 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.
READ ALSO: 7 Best CBD Stocks to Invest In Right Now
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.
At Insider Monkey we are obsessed with 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).
Brown-Forman Corporation (NYSE:BF-B)
Short % of Shares Outstanding: 3.76%
Brown-Forman Corporation (NYSE:BF-B) engages in the production and distribution of alcoholic beverages, with a special emphasis on spirits. This puts the company in a commanding position in the US, where spirits have continued to gain more and more market share over the last two years.
Brown-Forman Corporation (NYSE:BF-B) has been facing challenges in the post-Covid environment, with reported organic growth remaining flat or negative across its major categories. The spirits boom of the Covid lockdown has cooled down and a large number of the bottles that consumers had stocked up on are still sitting in their cabinets, leading to a weaker demand. Moreover, the rapid rise of ready-to-drink (RTD) and non-alcoholic offerings is also chipping away at the spirits’ market share.
That said, Brown-Forman Corporation (NYSE:BF-B) remains a leading operator in the spirits industry, with its premium brands positioned for long-term growth as global incomes rise and more people gain access to higher-quality alcohol. The company still has plenty of room for premiumization as several of its whiskey brands, like Woodford Reserve and Old Forester, still have untapped pricing power. Brown Forman’s highly popular tequila segment is also expected to gain from the excess supply of agave plants due to over-planting. This will bring down costs and increase margins.
Moreover, Brown-Forman Corporation (NYSE:BF-B) is also a proud member of the prestigious S&P 500 Dividend Aristocrats Index, having paid regular quarterly cash dividends for 81 consecutive years and even increased its regular dividend for 41 consecutive years. In November 2024, the company announced a 4% increase in its quarterly cash dividend to $0.2265 per share.
In addition to monetary profits, Brown-Forman Corporation (NYSE:BF-B) also remains committed to sustainability, focusing on reducing greenhouse gas emissions, protecting key watersheds, and ensuring 100% recyclable or reusable packaging. Last month, the company announced that it had also achieved its goal of engaging 100% of direct farmers on regenerative agricultural practices ahead of the 2025 deadline. Moreover, Brown-Forman has also recently introduced a 100% recycled bottle for the Woodford Reserve Distiller’s Select 50ml format, launched in global travel retail in December. The move is projected to reduce greenhouse gas emissions from the primary package by 30% or up to 204 metric tons annually while eliminating 101 metric tons of virgin plastic from the manufacturing process.
Overall BF-B ranks 9th on our list of the best alcohol stocks according to short sellers. While we acknowledge the potential for BF-B 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 BF-B but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 8 Best Wide Moat Stocks to Buy Now and 30 Most Important AI Stocks According to BlackRock.
Disclosure: None. This article is originally published at Insider Monkey.