Top 5 Beer Stocks of 2018

The world loves beer, and Americans too are fond of the low-alcohol drink. The National Beer Wholesalers Association (NBWA) cites a Gallup poll which indicates that beer has remained the preferred drink over the last 15 years, with wine and spirits taking the second and third spots, respectively. In 2017, around 40% of Americans listed beer as their beverage of choice, while wine was opted for by 30% and spirits by 26% of Americans. Eligible U.S. consumers consumed an average of 26.9 gallons of beer and cider during 2017.

As per the 2018 report by the Beer Institute, more than 5,600 breweries are actively operating in the U.S., which includes operations by both privately held and publicly listed companies. Such businesses are engaged in producing and selling alcohol beverages primarily in the domestic market and in select global markets or are in the associated businesses like operating as a local partner for a larger beer multinational. Their range of manufactured products includes a variety of brands of beers, malt beverages, spirits, and ciders. Few of the globally and locally known brands of beer produced and marketed by these companies include Budweiser, Corona, Stella Artois, Brahma, Victoria, Chernigivske, Sam Adams, and Corona. This article looks at the top performing beer stocks of 2018.

The lack of a dedicated beer (or alcohol) stocks specific market index does not allow for a standard sector-wise average for comparison. However, taking cues from the performance of the industry’s leading brewers offers some comparison benchmarks. Anheuser Busch Inbev NV (BUD), which has a high market cap of $123.5 billion in the brewery industry, lost more than 41% during 2018, while another major Ambev SA (ADR) (ABEV) having a market cap of $74.38 billion lost more than 39.5%. Other popular names like Molson Coors Brewing Co. (TAP) and Constellation Brands, Inc. (STZ) also lost more than 30% and 28%, respectively.

Compared to such top market-cap beer companies, the following beer stocks performed better. The list comprises of top 5 beer and other alcohol making companies which have a market cap exceeding $2 billion and are trading on leading American stock exchanges. The list is arranged in descending order of the returns generated by the company’s stock price based on the percentage gains realized between January 2, 2018, and December 31, 2018.

1.      Boston Beer Company Inc. (SAM)

• Market Cap: $2.87 billion
• Performance: 25% annual return

2.      Diageo plc (DEO)

• Market Cap: $345.28 billion
• Performance: (-2.9%) annual return

3.      Fomento Economico Mexicano SAB (FMX)

• Market Cap: $30.59 billion
• Performance: (-8.36%) annual return

4.      Brown-Forman Corp. (BF.B)

• Market Cap: $21.75 billion
• Performance: (-13.39%) annual return

5.      Compania Cervecerias Unidas SA (CCU)

• Market Cap: $10.10 billion
• Performance: (-16.27%) annual return

The beer maker which leads the list of top performing beer stocks was established in 1995 and is headquartered in Massachusetts. Operating through two segments, the company sells beer mainly in the local U.S. and in select global markets. Popular brands of the Boston Beer Company segment include Samuel Adams, Twisted Tea, Angry Orchard, and Truly Spiked & Sparkling brands, while the A&S Brewing Collaborative segment comprises The Traveler Beer Company, Coney Island Brewing Company, Angel City Brewing Company, and Concrete Beach Brewing Company.

After a steady first quarter, the stock witnessed nearly a 75% spike between April and July attributed to the solid first quarter earnings release. Angry Orchard and Truly hard Seltzer were the primary drivers of growth. The company gained on the exciting responses it received from its new launches which include Angry Orchard Rose, Sam '76, and Samuel Adams New England IPA. While the company struggled with its flagship Samuel Adams beer, it was successful in diversifying into beer alternatives and sparkling water portfolio.

The launch of new variants in the craft beer category coupled with new offerings in the non-beer categories, which include hard teas, ciders, and seltzer, are expected to drive the future growth of Boston Beer.

The UK-based Diageo was established in 1886 and ranks among the oldest global alcoholic beverage companies. Its principal products include almost all forms of spirits, beer, and ready-to-drink beverages. Its Dublin, Ireland-based brewery is the primary supplier of beer to the U.S., and Guinness remains the best known brand. Beer sales contributed 16% of annual revenues, while scotch took the top spot with a 25% contribution.

Diageo’s stock has traded in a narrow range over the year with an annual return of -3%. Its growth in the U.S. and India has remained flat, but the Chinese and African markets performed better and are expected to remain the growth drivers. Beer forms 65% of the total alcohol consumed in Africa, and the increasing population and higher income in the continent is expected to result in a whole new growth market for Diageo. Guinness and Hop House 13 lager generated the bulk of beer revenue. Globally, the company has managed to capitalize on the consumer shift to “premium” drinks as consumers increasingly prefer better quality instead of quantity and are willing to pay higher. It has strategically offloaded value brands such as Fireball in the process and is rumored to be looking for a cannabis partner to launch a new variety of drink to capitalize on the recently approved weed variants.

The Mexico-based Fomento operates as a holding company conglomerate. It conducts business through holding companies and segments, like Coca-Cola FEMSA, SAB de CV, and subsidiaries, which produce, distribute, and sell beer and other beverages. For instance, the Coca-Cola FEMSA produces, markets, sells, and distributes Coca-Cola trademark beverages through standard bottler agreements in select regions of operations. FEMSA Comercio division operates various small-format chain stores called OXXO—the bulk of which are in Colombia.

Quarterly numbers mostly drive the stock price of such diversified companies. The stock price of Fomento Economico took the hit when it announced quarterly results in late April, while results announcements with better numbers in late July helped the stock gain marginally. However, the third quarter results announced late October clubbed with overall market declines saw the stock giving up all the earlier gains. The company has its primary presence in Latin American nations and often gets hits with foreign currency fluctuations.

Established in 1933, the leading spirit and wine company had a lackluster year with negative returns. Its portfolio contains a diversified offering of more than 40 spirits, wines, beers, and ready-to-drink cocktails. The popular brands famous across the globe include the several distinct variants of Jack Daniel’s and Finlandia, in addition to several other prominent beverages. Though the company reported an increase in sales of around 38% in the German market with modest gains in the U.S. market, the retaliatory trade tariffs imposed by China and the European Union took a toll on the stock price around June. For the quarter ending October 2018, sales figures stayed flat compared to the same quarter of the previous year. The stock is expected to remain under pressure owing to global uncertainty around tariffs, and the company predicts single-digit growth in net sales and operating income for fiscal year 2019.

Las Condes, Chile-based Compania Cervecerias was incorporated in 1902 and has emerged as a diversified beverage company operating in Argentina, Bolivia, Chile, Colombia, Paraguay, and Uruguay. The company’s beer variants span across alcoholic and non-alcoholic beer, and some of its popular brands include Blue Moon, Royal Guard, Cristal, Dorada, Coors, Royal Guard Black Label, Heineken, Schneider, Austral, Escudo Negra, Morenita, Sol, Lemon Stones, and Szot. The company also has local and global operations in water, rum, soft drinks, nectar, wine, and confectionery industries.

While Compania Cervecerias generated negative returns of around 16% during 2018, its performance was better than other industry leaders. After a modest first quarter, the stock took a tumble in April following modest quarterly results and managed to hold on to those levels until year end. The company made one-time monetary gains on the early termination of the Budweiser license in Argentina. During the second quarter, the company managed mid-single digit growth in beer and low double-digit in the nonalcoholic drinks. As of year-end, it reported double-digit growth in the two months following the close of the transaction indicating a strong performance of its beer brand portfolio without Budweiser. The company continues to focus on its set targets of reducing costs, carbon footprint, water consumption, and industrial waste by 2020 and expects to increase its production capacity in Colombia through a new plant which will be a joint venture with Postobon, the market leader in non-alcoholic beverages in Colombia.

Graph Courtesy: Yahoo! Finance

With the industry leaders like Anheuser Busch and Ambev SA tanking by more than 40% during the year, a few beer stocks stood out. While there is no major pure-play beer company and almost all operate across a range of beverages that span from water to non-alcoholic to high-spirits drinks, beer contributes significantly to revenues and profits of leading beverage companies. As most operate on a local and global scale, the uncertainty at the global level may keep the earnings under pressure for beer companies.