We recently compiled a list of the 10 Best Alcohol Stocks To Buy According to Analysts. In this article, we are going to take a look at where Diageo plc (NYSE:DEO) stands against the other alcohol stocks.
An analysis by Goldman Sachs has revealed that beer and spirits volumes in the American market have shown little correlation with economic growth. This is because beer and spirits are often seen as affordable luxuries or even staples. Liquor tends to enjoy stable sales even when general consumer spending takes a hit elsewhere, while there have also been times when alcohol sales even increase during economic downturns, as they did during the COVID-19 pandemic and the Great Recession of 2008-09.
READ ALSO: 10 Best Liquor Stocks To Buy According to Short Sellers
However, things haven’t been exactly easy for the alcohol sector lately, especially after the recent report from the U.S. Surgeon General claimed that alcohol consumption in the country is directly linked to approximately 100,000 cases of cancer and 20,000 deaths annually. The report 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 proposition, if enacted, could seriously hurt sales for a sector that is already struggling with a pullback in drinking by younger consumers. 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. The growing popularity of low-and no-alcohol products, rising prevalence of cannabis use, and anti-obesity drugs picking up steam certainly haven’t helped either.
Another looming threat for the American liquor industry is that of tariffs. The European Union is due to reimpose its retaliatory tariff on American whiskey in late March, but at a higher rate of 50%. Over the last two years, American whiskey exports to the EU have surged by more than 60%, and total US spirits exports grew to a record high of $2.2 billion in 2023. But this success story could face a devastating turn unless President Trump’s administration can swiftly negotiate a prolonged suspension or permanent removal of the tariff.
However, amidst the sharp decline in sales following the pandemic, one category that could be a bright spot for the struggling booze industry is that of spirit-based RTD’s, despite the fall in the overall spirits segment. Americans consumed over 62 million cases of ready-to-drink spirits in 2023, up almost 25% from 2022, making it the second-largest spirit category by volume, right behind vodka. A plethora of new brands have popped up in the market over the last few years, offering canned versions of many bar classics, including Negroni, Daiquiri, and even the good ol’ Jack & Coke.
The alcohol sector also seems to be responding adequately to the evolving consumer trends by investing heavily in 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. Sales of Guinness 0.0, the zero-alcohol version of the highly beloved Irish stout, surged by nearly 50% between February 2023 and February 2024, putting it among the Best Selling Non Alcoholic Beers in the US. Nearly every major industry player has come up with No-Lo versions of their highly acclaimed brands, making sure they don’t miss out on their share of a market that is becoming more and more established every day.
Methodology:
To collect data for this article, we examined all the companies in the alcohol sector that are listed on NASDAQ and NYSE and then compiled a list of the stocks with the highest upside potential according to Wall Street analysts, as of January 27, 2024. Following are the Best Alcohol Stocks According to Analysts.
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A close-up of bottles of whisky and other alcoholic beverages from a winery.
Diageo plc (NYSE:DEO)
Stock Upside Potential: 13.53%
A global leader in premium drinks, Diageo plc (NYSE:DEO) is a British multinational alcoholic beverage giant with over 200 brands and sales in nearly 180 countries. The company’s portfolio has remarkable breadth across the spirits and beer categories in a range of markets around the world, providing it with a buffer against market volatility associated with luxury goods and also enabling it to find opportunities to roll out more accessible product lines or bring innovation to the ‘everyday luxury’ segment.
Scotch whisky is the real breadwinner at Diageo plc (NYSE:DEO) and the company owns some of the Best-Selling Scotch Whisky Brands in the World, including Johnnie Walker, in its portfolio and holds a commanding 39% market share in the segment. The company owns nearly half of the Scotch whiskey stock currently in the maturing stage, which represents a position that is impossible for competitors to replicate. Diageo’s beer business also seems to be going well and its iconic Irish stout, Guinness, has recently experienced a remarkable resurgence in popularity among younger drinkers in America. There had been some rumors going around that Diageo might be interested in divesting its Guinness brand following the company’s declining net organic sales, but they were shot down after the alcohol giant stated that it had no intention to sell. Diageo will also continue to retain its 34% holding in champagne and cognac company Moet Hennessy, quashing widespread speculation.
Diageo plc (NYSE:DEO) is also one of the Best Alcohol Stock for Dividends, having continuously increased its dividend payout for the last 25 years. The company stood up to its reputation as a very reliable dividend payer and increased its full-year dividend by 5% in FY 2024
Oakmark Global Select Fund 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 10th on our list of the best alcohol stocks to buy according to analysts. While we acknowledge the potential for DEO 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 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 is originally published at Insider Monkey.