Here in Silicon Valley, many a glass of Cabernet is raised to toast a business deal, a wedding, or simply the gathering of old friends. Many Silicon Valley “veterans” retire up North to repeat their success in the growing wine industry, creating a whole new influx of money, talent, and ideas.
The wine craze shows no signs of stopping, but unfortunately there are only a few publicly traded wineries in North America to choose from. Another way to invest in wine (and the safer way to go) is to choose the larger, more secure beverage companies that have significant holdings in major wineries, three of which are detailed below.
Constellation Brands
Although Constellation Brands, Inc. (NYSE:STZ) doesn’t represent a “pure” wine investment (it is a wine, beer, and spirits company), it does give the wine-savvy investor the opportunity to invest in Napa Valley wines. Constellation Brands, Inc. (NYSE:STZ)’s brand portfolio includes some Napa valley labels that are household names in SIlicon Valley – such as Robert Mondavi, Clos du Bois, Blackstone, Estancia, and Ravenswood. This company appears to be a mixed bag in the eyes of investors as it has a CAPS rating of 3, and Fools and analysts alike either love it or hate it. Given the huge brand portfolio, the popularity of its premium wine brands such as Ravenswood, Robert Mondavi, and Clos du Bois (my very favorite Merlot label), and great cash flow numbers (245.7M change in cash annually, announced at the last year end period, it has my vote. Those who hate it cite top-heavy management and slower growth rates than the valuation might indicate. During the last earnings announcement, the CEO mentioned some higher grape costs creating margin pressure (margins are now around 50% total, quite respectable for a beverage company), but stated that his strategy will be to increase market share for the premium wine brands. I’ll drink to that!
Diageo
Beverage giant Diageo plc (ADR) (NYSE:DEO) is best known as the company behind Bailey’s; it is a little known secret that it also owns Beaulieu VIneyards and Sterling Vineyards through its UDV Guinness subsidiary. Both brands are premium and well-distributed to higher end grocery stores and restaurants, at least throughout the West. Diageo as a whole is highly diversified within the alcoholic beverage field, and owns such well known brands as Guinness, Smirnoffs, J&B, and Tanquerey. A British company, Diageo plc (ADR) (NYSE:DEO) is traded in 180 countries – with primary volume coming from the US New York Stock Exchange and the London Stock Exchange.
Providing the best of both worlds, Diageo plc (ADR) (NYSE:DEO) both pays a dividend (current yield is at 2.4%) and has had stock price performance that outstripped the Standard and Poors for the last year. The CAPS rating is a 4 out of 5, and most Fools like its geographic reach, brand diversity, longevity, and marketing strength. There are some concerns that it could be a tad overvalued – the stock is trading north of $121 per share today and has a price/cash flow ratio of 19.6 – but for the most part, Diageo plc (ADR) (NYSE:DEO) is a solid blue chip choice. I also like its low debt position, ability to innovate new brands and drinks, and willingness to overhaul older, tired brands when the time is right.
I personally love Sterling Wines and the nice little gondola ride up the hill to the tasting rooms, so I would love to invest in Diageo to have a very small ownership stake in one of my favorite places.
Brown-Forman
It will probably be a surprise to many, but the popular Sonoma Cutrer winery as well as Korbel Champagnes are owned by good old Brown-Forman Corporation (NYSE:BF.A); manufacturer of our old college friend, Jack Daniels. Another wine-related revenue stream for Brown-Forman Corporation (NYSE:BF.A) is oak barrels, which is responsible for that nice, rich taste found in premium wines. Brown-Forman has a healthy CAPS rating of 4 out of 5; as one foolish CAPs commentator pointed out, “Jack never goes out of style”. From wedding season to New Years Eve, neither does Korbel. Although the EPS took a 6.1% hit from a year ago, the company posted 7.5% revenue growth and is widely heralded as a great, long term play. So our friend Jack won’t make us rich (as many have learned while consuming too much of a good thing), but investing in him will give us some good, long term and stable capital appreciation.
In summary – alcohol stocks make good investments in both good and bad times. In the good times, we celebrate. In the bad times, we cry into our beer…..or wine….
Brenda Johnson has no position in any stocks mentioned. The Motley Fool recommends Diageo plc (NYSE:DEO) (ADR).
The article Raise Your Glass to These Wine Stocks originally appeared on Fool.com.
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