Constellation Brands, Inc. (STZ) owns many brands of beer, wine and spirits, including the popular Corona and Modelo beer franchises. The stock closed Tuesday, Oct. 2, at $212.73, down 6.9% year to date and in correction territory at 10.1% below its all-time intraday high of $236.62 set on April 30. The company suffered from a decline following a negative reaction to earnings released on June 29 that eventually pushed the stock to its 2018 low of $198.85 set on Aug. 17.
Analysts expect Constellation Brands to report earnings per share of $2.58 to $2.61 when the company releases results before the opening bell on Thursday, Oct. 4. Can demand for iconic brands Modelo and Corona continue to lead the competition given the earnings miss at the end of June? Beer must lead, as sales of wine and spirits have been slowing. One wild card now is the status on the company's recent investment of $4 billion into the Canadian cannabis company Canopy Growth Corporation (CGC). Constellation Brands now owns more than 50% of Canopy. (See also: 4 Consumers Stocks Facing Steep Declines.)
The daily chart for Constellation Brands
Constellation Brands began 2018 above its annual value level of $206.21, which is the lower of three horizontal lines. This level was tested as a buying opportunity on Feb. 9. The stock has moved sideways to down since setting its all-time intraday high of $236.62 on April 30. Constellation shares returned to $206.21 as an annual pivot on Aug. 3 and found that level as a magnet until Aug. 24, when strength returned to the stock. Since then, the stock has been shy of its 200-day simple moving average of $219.79 between Sept. 12 and Sept. 28. The middle horizontal line at $217.90 is my risky level for October.
The weekly chart for Constellation Brands
The weekly chart for Constellation Brands ended last week positive, with the stock above its five-week modified moving average of $213.34. The stock is well above its 200-week simple moving average of $167.30, which is the "reversion to the mean." The 12 x 3 x 3 weekly slow stochastic reading is projected to rise to 52.85 this week, up from 44.51 on Sept. 28. A close on Friday below $213.34 would downgrade the weekly chart to neutral.
Given these charts and analysis, investors should buy shares of Constellation Brands on weakness to my annual value level of $206.21 and reduce holdings on strength to my monthly risky level of $217.90. (For more, see: How to Invest in Liquor.)