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 Diageo plc (NYSE:DEO) 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.
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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.
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A close-up of bottles of whisky and other alcoholic beverages from a winery.
Diageo plc (NYSE:DEO)
Short % of Shares Outstanding: 0.12%
With a short percentage of only 0.12%, Diageo plc (NYSE:DEO) tops our list of the Best Alcohol Stocks to Buy According to Short Sellers. Diageo is a British multinational alcoholic beverage giant with over 200 brands and sales in nearly 180 countries. The company’s competitive edge stems from the sheer breadth across its portfolio and extensive geographical footprint, providing it with a solid foundation for strategic realignment and a strong buffer against market volatility associated with luxury goods.
Diageo plc (NYSE:DEO) has recently been divesting assets as part of its strategic portfolio management, pivoting away from its ‘affordable luxury’ narrative towards a more conventional staples business model. The company agreed to sell Pampero rum and Safari flavored liqueur last year and is now also considering the sale of Cîroc Vodka, a brand previously associated with music mogul Sean “Diddy” Combs. Though net sales of the brand fell 28% in the fiscal year 2024, its strong presence in nightclubs could attract certain bidders who see turnaround potential.
Diageo plc (NYSE:DEO) boasts 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 almost half of all the Scotch whiskey stock currently in the maturing stage, which represents a position that is impossible to replicate by competitors. Diageo plc (NYSE:DEO)’s beer business also seems to be faring well and the demand for its iconic Irish stout, Guinness, has boomed over the past 18 months, driven by younger drinkers and women. Diageo’s beer business delivered 14% organic net sales growth in fiscal year 2024, driven primarily by the continued momentum of Guinness.
Diageo plc (NYSE:DEO) also maintains a progressive dividend policy and has continuously increased its dividend 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.
However, Diageo plc (NYSE:DEO) could also become a victim of President-elect Donald Trump’s rumored 25% tariffs on imports from Mexico, as the spirit giant’s subsidiaries shipped over 25 million liters of tequila to the US from its southern neighbor last year, including brands such as Don Julio and Casamigos. That said, Diageo has decades of experience navigating trade policy and has always taken trade disputes in its stride.
Aristotle Capital Management, LLC, an investment management company, said the following about DEO in its Q3 2024 investment letter:
“Headquartered in London, England, Diageo plc (NYSE:DEO) is a global leader in the alcoholic beverages industry. The company has a vast portfolio of over 200 well-recognized premium spirits (~80% of FY 2024 sales), beers (~15% and mostly Guinness) and other beverages (~5%) that are sold in nearly 180 countries. Led by its Johnnie Walker brand, Diageo is the world’s largest exporter of Scotch whiskey—its largest category at ~25% of sales—followed by other spirits such as tequila and vodka (~10% each). Diageo also owns a ~34% stake in the premium champagne and cognac maker Moët Hennessy (a subsidiary of LVMH Moët Hennessy Louis Vuitton).
The company is the product of the 1997 merger between Grand Metropolitan and Guinness and the subsequent divestiture of its food-related businesses. M&A continues to be a part of Diageo’s strategy, as regional brands often dominate local markets (which provides further opportunities for mergers and industry consolidation). Over the last decade, Diageo has also meaningfully increased its presence in the rapidly growing tequila market with the acquisitions of Don Julio and Casamigos…” (Click here to read the full text).
Overall DEO ranks 1st on our list of the best alcohol stocks according to short sellers. 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.
