By Nilus Mattive With the holiday season in full swing, many people are busy stocking their fridges, wine cellars, and liquor cabinets in anticipation of guests, parties, and the stress associated with finding the perfect gift. Standard & Poor's equity analyst Anishka Clarke thinks it might also be a good time to pour some money into the stocks of a select few alcoholic beverage companies.
Why is she bullish? Clarke says the outlook for alcoholic beverage companies is favorable for a number of reasons. One is the large number of people between the ages of 21 and 27 in the U.S. That group, an important market for the alcoholic beverage industry, has become more interested in beverages once favored by older drinkers. "There has been a surge in the popularity of wine and spirits for this demographic," Clarke notes.
SOARING SPIRITS. Favorable pricing is also a potential benefit for the industry. Clarke thinks beer prices will remain strong over the next six months. And although an oversupply of grapes has kept wine prices in check, she believes that supply will dry up by 2006, allowing vintners to raise their prices.
Because marketing and promotion ploys play a big part in selling alcoholic beverages, Clarke also notes that some makers are stepping up their efforts to attract consumers. For example, companies have been increasing on-site marketing efforts, such as hosted functions at bars. Clarke says these targeted events, along with increased media advertising, will continue to aid industry growth.
That said, what does S&P consider the top-shelf names in the alcoholic beverage group? Clarke currently favors Anheuser-Busch (BUD
Quality ranking, A+; recent price, $50), Brown-Forman (BF.B
; A; $48), and Constellation Brands (STZ
; B+; $46). She believes Anheuser, which carries an S&P investment ranking of 4 STARS (buy), will successfully stave off strong competition to remain the leading brewer in the U.S.
BIG CELLAR. The analyst likes Brown-Forman because she thinks it's well positioned to take advantage of positive industry trends. She thinks that should lead to increased sales of Brown-Forman's brands, which include behind-the-bar icons like Jack Daniel's, to both younger Americans and international customers. Clarke ranks Brown-Forman 5 STARS (strong buy).
As for Constellation, Clarke thinks it will gain from strong beer pricing since it distributes 6 of the 22 major imported beer brands. In addition, it has the largest wine business in the world and a line of distilled spirits. Constellation is also ranked 5 STARS. Mattive is senior editor for Standard & Poor's weekly investing newsletter, The Outlook