Invest in the OTHER Coronavirus
Dear Rich Lifer,
You know I love conservative income stocks, especially since they provide a lot of downside protection during market calamities and panics (like the current one about a new virus coming out of China).
So today I want to talk about a different kind of “Corona virus” – namely the belief that alcoholic beverage makers are bad investments because beer sales are declining.
A quick look at a chart of Anheuser-Busch InBev (BUD) over the last five years will give you a good sense that investors are simply choosing to put their money elsewhere as other sectors and industries rally sharply…
While BUD is one of the more extreme examples, the reality is that most of its peers in the alcoholic beverage space have been fairly dead money over the last couple of years as well.
Is this justified?
Not in my opinion.
Alcohol Isn’t Going Anywhere
Sure, tastes might be changing, but the bigger picture is roughly the same as it’s always been.
For every beer not being purchased, there’s now a hard seltzer getting downed.
The overall trend is similar to what we’ve been seeing play out in the non-alcoholic beverage space – with consumers switching from higher-calorie sodas to flavored sparkling waters.
“Domestic brews, such as Budweiser, Coors Light and Miller Light, once dominated the US beverage market. But sales are declining while alternatives are spiking. Drinkers think beer is stale, compared to the innovative new brands and creative concepts emerging from other places, so they are craving a variety of other boozy drinks, including premium liquor, canned wine, spiked seltzers and pre-made bottled cocktails.
“In 2018, alcohol consumption in the United States dropped for the third-straight year, according to IWSR Drinks Market Analysis. And beer is to blame: Sales of a case of beer declined 1.5%. For the past five years, beer volume in the US declined 2.4%, the firm said.
“The trend doesn’t appear to be reversing itself. Sales of domestic beer slipped 4.6% between October 2018 and October 2019, according to Nielsen. Microbrew and craft beers are also in a minor slump, down 0.4%, despite Big Beer companies scooping them up left and right (AnheuserBusch just purchased Craft Brew Alliance, which makes Redhook Ale).
“But people are still drinking — a lot. Alternative drink categories that both firms tracked have all grown.”
This is precisely why BUD itself spent quite a bit of money to advertise its new Bud Light Seltzer product during this past weekend’s Super Bowl.
In a recent article about millennials shunning wine for hard seltzers like White Claw and Boston Beer Company’s (SAM) Truly, MarketWatch reports:
“While the volume of beer and cider sales slipped 2.3% and 3.8% respectively last year, ready-to-drink (RTD) cocktails surged almost 50%, per the IWSR data, driven by the ‘tremendous popularity’ of hard seltzers, which represent 43% of the RTD category. Spiked seltzers have bubbled up into an $8 billion industry with sales projected to triple by 2023 …
“Even though the number of Americans drinking alcohol in general has been on the decline, those who are still indulging spent $167 billion on booze last year, per [alcohol industry tracker] IWSR data, which was up 2.5% from the year before. And while the volume of wine sales is down, those who still enjoy a glass or two at dinner or happy hour are spending more on it. The dollar amount of wine sales increased 1.1% to hit $38.3 billion last year.
“What’s more, the Wine Institute told the Wall Street Journal that it expects millennials to start drinking more wine as they grow older, similar to what baby boomers did.”
So it is highly likely we will continue to steady demand for alcoholic beverages, through good times and bad, just as we always have.
What if the Market Changes?
That’s precisely what makes dividend-paying alcohol companies such a good addition to any portfolio.
Just for some historical reference …
Overall, the S&P 500 has lost an average of 21 percent during past recessions (excluding the latest one).
Meanwhile, the average consumer staples stock lost just 2.4 percent, beating the market 90 percent of the time.
And once you drill down a bit further into the various industries that make up the consumer staples sector, you’ll find that alcoholic beverage makers not only beat the market in 80 percent of recessions, they actually rose an average of 6 percent in all those events leading up to the financial collapse of 2008-2009.
I have zero reason to believe the next time will be any different.
So as others continue to shun traditional companies… as they push names like Tesla to the stratosphere… I humbly recommend continuing to look at the forgotten corners of the market like the lowly alcoholic beverage makers.
To a richer life,