We recently published a list of 12 Best Brewery Stocks to Buy According to Hedge Funds. In this article, we are going to take a look at where Altria Group, Inc. (NYSE:MO) stands against other best brewery stocks to buy according to hedge funds.
The global alcohol industry is currently grappling with strict regulations, high taxes, inflation, and rising costs, which are likely to persist and may squeeze the profit margins of alcohol producers. The global brewing industry had been hit particularly hard as beer production worldwide fell to 1.88 billion hectoliters last year, representing a YoY decline of 0.9 %.
Peter Hintermeier, Managing Director of BarthHaas, commented:
“After we had managed to post modest growth in 2022 despite unfavorable conditions, we were expecting another small increase in 2023. However, energy, raw materials, packaging, logistics, and labor costs remained at a high level, which put pressure on the brewing business in many countries.”
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The American brewing industry is also faced with a declining demand, as beer consumption in the US last year fell to its lowest level since the 1970s, according to the Brewers’ Association. In fact, in 2022, the American spirits industry surpassed beer in revenue for the first time ever. The trend then continued in 2023, driven primarily by the spirits RTD category. Nevertheless, the country’s major brewers were still in good financial health, thanks to rising prices and a consumer shift towards more expensive, often imported beers.
A major factor behind the decreasing demand is also global drinking habits have shifted dramatically over the last few years. The modern consumers are increasingly focused on health and wellness and seek alternatives to traditional alcoholic beverages, giving rise to the rapidly growing low and no-alcohol trend. To make sure they don’t miss out on the opportunity, several industry behemoths have hopped on the zero-alcohol bandwagon and are now offering products with all of the taste and none of the booze.
Despite the aforementioned challenges, the alcohol sector can be an attractive option for investors looking to diversify their portfolios, simply because of the buffer it provides during tough economic times. An analysis by Goldman Sachs has revealed that beer and spirits volumes in the American market have shown little correlation with economic growth. Their sales are more related to the general trends of alcohol consumption per capita rather than the general state of the economy. This is because beer and spirits are often seen as affordable luxuries or even staples.
According to a study by Cambridge University, the decreasing levels of average per capita income lead to very small changes in gross alcohol, wine, and beer consumption. In fact, the surge in unemployment during recessions could instead trigger an increase in the average alcohol intake.
A great example of this is how Americans drank more alcohol during the pandemic and this was also reflected in the resultant imposts collected by the national kitty. Alcohol tax revenues collected by the U.S. Treasury Department rose by 8% in the fiscal year that ended on Sept. 30, 2021, compared to the previous year, and remained well above pre-pandemic levels.
Another popular investment vehicle in the alcohol industry is rare whiskeys. Aptly named ‘Liquid Gold’, this beloved liquor can preserve and even increase in value during economic instabilities, inflationary periods, and recessions. One simply cannot forget about the bottle of The Emerald Isle Collection that sold in auction earlier this year for $2.8 million, or the 1975 cask of Ardbeg single malt which was acquired by a private collector in Asia in 2022 for over $20 million, more than double the amount Glenmorangie paid for the entire Ardbeg distillery and all its stock in 1997.
The Rare Whisky 101 Apex 1000 Index tracks whiskeys that are highly sought after for collection. It has gained over 384% since 2013, against almost 301% gains by S&P’s famous benchmark of the top 500 companies for the same period. The RW Japanese 100 Index, which includes 100 collector’s bottles from Japan, has seen gains of around 350% since 2015. The index includes bottles like Ichiro’s Malt ‘Card’ Ace of Spades, Ace of Diamonds, and King of Hearts, among others.
Methodology
To collect data for this article, we scanned Insider Monkey’s database of 900 hedge funds and picked the top 12 companies operating in the brewing sector with the highest number of hedge fund investors. When two or more companies had the same number of hedge funds investing in them, we ranked them by the revenue of their last financial year instead.
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).
A close-up of an assembly line with a blend of tobacco products.
Altria Group, Inc. (NYSE:MO)
Number of Hedge Fund Holders: 32
Altria Group, Inc. (NYSE:MO) is an American tobacco company that manufactures a wide range of related products including cigarettes and other nicotine products. Though not directly involved in brewing itself, the company owns a significant stake in Anheuser-Busch, the largest beer company in the world.
Billy Gifford, CEO of Altria Group, Inc. (NYSE:MO), recently stated:
“Over the decades of our ownership, the beer investment has provided significant income and cash returns and supported our strong balance sheet. Our continued investment reflects ongoing confidence in ABI’s long-term strategies, premium global brands and experienced management team.”
However, Altria Group, Inc. (NYSE:MO)’s primary focus remains the tobacco industry, or rather on selling traditional cigarettes within the US market. It operates exclusively in North America and holds control over Marlboro, the most popular cigarette brand in the region. The company also boasts a robust smoke-free product portfolio, particularly oral nicotine pouches, and heated tobacco products.
Altria Group, Inc. (NYSE:MO) announced the acquisition of e-cigarette maker NJOY last year and it seems the investment is going well. The company has been able to grow that business very quickly as it pushed the new product through its strong distribution network. In Q3 of 2024, NJOY consumables shipment volume grew more than 15% YoY to 10.4 million units, while NJOY device shipment volume for the quarter nearly tripled versus the prior year to 1.1 million units and was 3.9 million units for the first nine months. However, Altria’s cigarette volumes have been declining consistently over the last few years and the NJOY business is nowhere near large enough to offset the troubling downturns in its core business. The company has been able to balance volume declines with price increases, but the decreasing market share of its Marlboro brand means that consumers are likely shifting to cheaper ways to consume nicotine.
MO remains committed to its shareholders and paid $1.7 billion to shareholders through dividends in Q3. In fact, the company has raised its payouts 59 times in the last 55 years and is included in our list of the Top 15 Dividend Kings. Altria also repurchased 13.5 million shares for $680 million in Q3.
Altria Group, Inc. (NYSE:MO) stock has emerged as an impressive winner this year and has gained almost 26% this year, primarily due to a better-than-anticipated quarterly performance driven by growth in its oral tobacco products.
Ashva Capital stated the following regarding Altria Group, Inc. (NYSE:MO) in its Q3 2024 investor letter:
“At Ashva Capital, our focus on intrinsic value–rather than market sentiment or temporary price metrics– sets our portfolio apart from peers. For example, we hold Altria Group, Inc. (NYSE:MO), which has demonstrated resilience and strong performance within our portfolio, particularly following a robust Q3 earnings report. Altria’s results highlighted increased demand for smokeless products, underscoring both the adaptability of its business model and its long-term growth potential—a key factor in our investment decision.
This approach to intrinsic value echoes insights from renowned value investor Bill Miller, whose strategy emphasized fundamental value over market-driven factors. Key principles from Miller’s approach that inform our strategy include:..” (Click here to read the full text)
Overall, MO ranks 5th on our list of best brewery stocks to buy according to hedge funds. While we acknowledge the potential for MO to grow, 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 MO 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.
