According to the Wine Institute, a consortium of California wineries and wine-related businesses, Americans consume nearly a billion gallons of wine per year—roughly 3 gallons per person. Millennials are drinking more wine than other generations—wine consumption among this group has risen by about 10%, even as beer consumption dropped—and as they replace other age groups, wine stocks could see significant upside. The trend bodes well for the small but growing group of publicly traded companies manufacturing and distributing wine, such as Truett-Hurst, Inc. (THST) or Constellation Brands, Inc. (STZ).
Wine Stock Performance in 2019
After a quarter-century of steady growth, wine sales have slowed in 2018 and 2019. One primary reason for this shift is that sales growth has been eclipsed by the expansion of drink options, which is brought about by shifting consumer preferences. Competition from legalized cannabis has also played a role.
Add to that the fact that brands have consolidated in many cases in recent years, and investors looking to take part in the wine stock game have few options. Those options which do remain are under pressure from difficult sales and profit margins. Nonetheless, there are some wine stocks that have managed to thrive and may continue to do so in 2020.
Here's a look at the top-performing individual wine stocks. We've compared each to the S&P Food & Beverage Select Industry Index (SPSIFB) average one-year return of 12.14% as a benchmark.
All data is current as of Jan. 13, 2020.
- Although not many wine companies have gone public, the growing number of millennial wine drinkers who are reaching a higher earning potential shows a strong potential upside for the sector.
- The average wine consumption per capita is rising, even as beer consumption is dropping.
- Companies that are wine plays include tiny Truett-Hurst, giant Diageo, diversified Constellation Brands, and MGP Ingredients.
- Market Cap: $5 million
- Performance vs. SPSIFB: 15.30%
California-based Truett-Hurst is a tiny (nano-cap) wine producer which typically trades at penny-stock levels. The company produces mid-range wines under the T-H label out of its facilities in Healdsburg. Truett-Hurst also produces alcohol products under a small selection of alternative brand names as well.
Truett-Hurst's stock price rose last January, in part as a result of the company's decision to buy back stock at liquidation prices in order to boost value for existing shareholders. This move has helped to place Truett-Hurst in a debt-free position, allowing the company to build up a pile of cash. In March, it delisted itself from Nasdaq and now trades OTC, which may reduce costs and further boost profits.
- Market Cap: $99.13 billion
- Performance vs. SPSIFB: 22%
Diageo is one of the largest distilling companies in the world. Founded in 1886, the London-based company is the maker of many of the most popular distilled beverages, including Smirnoff, Johnnie Walker, Baileys, and many others. Although Diageo's business focuses on distilled spirits and beers, the company is also involved in the wine industry, with investments in Moët Hennessy and other makers. Its products are distributed all around the world, and the company has a knack for catering to the local tastes of the regions. Per company reports, Diageo leadership is optimistic that modest but steady growth will continue into the future as well.
- Market Cap: $37.67 billion
- Performance vs. SPSIFB: 7.82%
Constellation Brands is a producer of beers, distilled spirits, and wines by Robert Mondavi and other makers. And it's adding another recreational "sin" consumption item to its repetoire: The company has invested about $4 billion in legal cannabis producer Canopy Growth Corp. (CGC).
The company has done quite well in recent years, with revenues increasing by more than 20% since the beginning of 2016.
- Market Cap: $861.57M
- Performance vs. SPSIFB: 28.43%
MGP Ingredients is not technically a wine stock at all; rather it's a Kansas-based company specializing in both food and beverage ingredients related to the distilled spirits industry. The company also manufactures and distributes various spirits and other alcohol products.
Although MGP is not in the business of wine-making at the present time, it is nonetheless a noteworthy performer: As 2020 opened, the stock was up 215% in five years. During five years of share price growth, MGP Ingredients achieved compound earnings per share (EPS) growth of 19% per year.
The Bottom Line
Wine-making is a costly and risky business venture, and it is no surprise then that investing in wine stocks is similarly fraught. While there are undoubtedly opportunities for growth in this small industry, investors may be best off exercising caution.