We recently compiled a list of the Beer Loses Fizz as Spirits Gain Popularity: Top 10 Stocks to Buy. In this article, we are going to take a look at where Brown-Forman Corporation (NYSE:BF-A) stands against the other spirits stocks.
With 2024 heading to a close, the alcoholic beverages industry is also changing. Data from the Distilled Spirits Council (DSC) shows that spirits continue to gain over beer, which has traditionally been the go-to alcoholic beverage of choice. In 2023, spirits held more than 42% of the total market to mark a 13 percentage point gain since 2000. These shifts are coming at a time when Americans’ attitudes relating to alcohol are significantly changing. For instance, a very detailed survey from Gallup asked participants a plethora of questions surrounding their drinking habits and their perceptions of alcohol’s role in society.
When compared to participants surveyed in 2001, when 22% of participants viewed alcohol as good for health, this figure dropped by more than half in 2023 and sat a two decade low of 10%. Similarly, confirming the DSC’s data, while 47% of participants had drank beer the most often in 1992, not only did this percentage drop to 37% in 2023, but the figures for wine and liquor jumped to 29% and 31% from 27% and 21%, respectively.
29% drank no alcohol in the past week in 1987, while 33% reported the same in 2023. Other research also shows that while 72% of 18 to 34 year olds had reported having a drink in the past year between 2001 and 2023, this dropped to 62% as of 2024. This suggests that the trend for lower alcohol consumption is driven primarily by young people as the percentages increased for both 35 to 54 year olds and those aged above 55.
Building on this, while the dropping alcohol use might intuitively sound bad for the liquor industry as it contributes to lower sales, the reality might be a bit different. This is because lower intensity of alcohol consumption leads to better health outcomes and more long term business for the alcohol companies. Additionally, with the rising demand for spirits, younger drinkers tend to be focused on sweeter drinks like tequila or its close cousin Mezcal. This is because while the sales of America’s favorite spirit, vodka, remained flat in 2023, tequila/mezcal sales grew by 7.9% annually to sit at $6.5 billion and edge close to vodka’s dominant market position of $7.2 billion.
Additionally, Americans continue to be driven by convenience too, since the fastest growing spirits category is premixed cocktails or ready to drink (RTD) alcohol. While this category’s share of the market is relatively smaller at $2.8 billion, it jumped by 26.8% annually and was the only spirit with a double digit percentage market share gain.
While it’s possible that the drop in alcohol consumption is because of a health conscious population (with 39% believing in 2023 that alcohol is bad for health, up from 27% in 2001), it’s also possible that other recreational products such as cannabis and psychedelics are taking over. For cannabis, 2024 has proven to be a pivotal year as more users get to try it due to growing legalization and decriminalization. On this front, data gathered by the Substance Abuse and Mental Health Services Administration (SAMHSA) provides insights. The SAMSA’s 2019 National Survey on Drug Use and Health revealed that 50.8% or 139.7 million people reported drinking alcohol. The same survey for 2022 saw this figure drop to 48.7% or 137.4 million people. Crucially, 54.3% or 18.3 million aged 18 to 25 had drank within the past month in 2019, while in 2022, this figure was 50.2% or 17.5 million.
So, it’s clear that alcohol use has dropped in between 2019 and 2022. For marijuana, its use is growing on the other hand. In 2019, 35.4% of the same age group were marijuana users, which was significantly higher than the 29.8% in 2002. Overall, 17.5% or 48.2 million people used marijuana in the past year in 2019, up from 11% in 2002. In 2022, this figure had jumped to 61.9 million people. Another key study that directly analyzes whether marijuana is gaining over alcohol in popularity comes from the Addiction Journal. It analyzes the SAMHSA’s data between 1992 and 2022 to report a 15x per capita rate increase in cannabis use.
Numerically, 17.7 million people reported using cannabis on a daily or near daily basis in 2022, which was three million higher than the 14.7 million for alcohol use. Similarly, the intensity of cannabis use was higher as the median cannabis user reported using 15 to 16 days in the past month while the median drinker drank for 5 to 6 days.
To sum it up, right now, alcohol use is dropping, younger drinkers prefer sweeter drinks and spirits over vodka and beer, and the rate and scale of cannabis use are increasing. With these details in mind, let’s look at the top ten alcoholic beverage stocks to buy.
Our Methodology
To make our list of the top ten alcohol stocks to buy, we ranked the 40 most valuable alcoholic beverage companies that trade on the NYSE and NASDAQ by the number of hedge funds that had bought the shares during Q1 2024. Out of these, the stocks with the highest number of hedge fund users were chosen.
Why are we interested in 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 bottles of whisky and other alcoholic beverages from a winery.
Brown-Forman Corporation (NYSE:BF-A)
Number of Hedge Fund Investors in Q1 2024: 30
Brown-Forman Corporation (NYSE:BF-A) is one of the largest and oldest alcoholic beverage companies in the world. It is a diversified spirits company that sells whiskey, tequila, gin, and rum. This means that the Brown-Forman Corporation (NYSE:BF-A) is positioned well to capitalize on the growing spirits market in America. However, its shares are down by 23% year to date, hurt particularly by Brown-Forman Corporation (NYSE:BF-A)’s reliance on its well known whiskey, Jack Daniels. Since Jack Daniels is the firm’s best selling and most popular product, the stock performance is tied to the whiskey’s performance. During Brown-Forman Corporation (NYSE:BF-A)’s second quarter, its Jack Daniels sales dropped by 6% to build on the previous quarter’s 6% sales drop. However, the growth in RTD spirits which we talked about in the intro was also evident in the firm’s product mix, with RTD sales growing by 2% and helping Brown-Forman Corporation (NYSE:BF-A) navigate a tough market through product differentiation.
Madison Mid Cap Fund mentioned Brown-Forman Corporation (NYSE:BF-A) in its Q2 2024 investor letter. Here is what the firm said:
“We also made two adds and two trims during the quarter. We added to Brown-Forman Corporation (NYSE:BF-B) and Thor Industries. Brown-Forman is facing a slight decline in sales, which has elevated investor concern over risks to demand from increased competition and changes in consumer tastes. We believe the long-term outlook for the category and the Jack Daniels brand remains solid.”
Overall BF-A ranks 5th on our list of the best spirits stocks to buy. While we acknowledge the potential of BF-A 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 timeframe. If you are looking for an AI stock that is more promising than BF-A 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.