U.S. wine stocks rose Tuesday after news surfaced that China has launched an anti-dumping investigation into Australian wine exports, alleging that the country sold wine below the cost of production. Beijing is expected to report back on the allegations next August but has flagged that the deadline could be extended to February 2022.

Key Takeaways

  • China has launched an anti-dumping investigation into Australian wine exports that could result in tariff introductions.
  • Constellation Brands, Inc. (STZ) shares appear to be forming an inverse head and shoulders bottoming pattern.
  • Brown-Forman Corporation (BF.B) stock reached a new all-time high in Tuesday's session.
  • Willamette Valley Vineyards, Inc. (WVVI) stock is trading back above its 200-day simple moving average (SMA).

The move comes several months after China imposed tariffs on Australian barley and suspended a range of beef exports amid similar dumping claims. Australia, which is the world's largest wine exporter to China by value ($795 million), had vino tariffs eliminated by the country in 2019. By contrast, U.S. wine sellers are subject to a steep 93% levy that saw American wine sales slump 6.5% in 2019. An introduction of Chinese tariffs on Australian wines would, therefore, level the playing field for U.S. producers.

Below, we take a closer look at three leading U.S. winemakers and identify possible trading opportunities using technical analysis.

Constellation Brands, Inc. (STZ)

Constellation Brands produces and markets beer, wine, and spirits in the United States and internationally. Despite Chinese tariffs imposed on U.S. wines, the New York-based beverage giant inked a new distribution deal in mainland China last year for its Robert Mondavi Private Selection – a range of barrel-aged wines. As of Aug. 19, 2020, the stock has a market capitalization of $34.36 billion, offers a 1.73% dividend yield, and is trading nearly 5% lower on the year. However, the shares have added 6.18% over the past three months.

The stock appears to be carving out an inverse head and shoulders pattern – a formation that typically indicates a market bottom. Furthermore, the 50-day SMA crossed above the 200-day SMA in mid-July to generate a golden cross buy signal. Those who enter at these levels should consider setting a take-profit order near the pre-pandemic high at $205.71 but cut losses if price fails to hold above this month's low at $169.31.

An inverse head and shoulders pattern is similar to the standard head and shoulders pattern, but inverted, with the formation used to predict reversals in downtrends.

Chart depicting the share price of Constellation Brands, Inc. (STZ)

Brown-Forman Corporation (BF.B)

Louisville, Kentucky-based Brown-Forman bottles and markets various alcoholic beverages, including spirits, wines, and whiskey. According to the company's annual report, both wine volumes and net sales decreased by 1% in fiscal 2020, with management citing adverse effects from the coronavirus pandemic. Meanwhile, the company estimates that Chinese and European Union (EU) retaliatory tariffs slashed its 2019 fiscal revenue by about $125 million. As of Aug. 19, 2020, Brown-Forman stock has returned 6.37% year to date and 7% since mid-May.

Since bottoming out in the mid-$40s at the height of the March selling rout, the stock has staged a remarkable recovery, setting a new all-time high in Tuesday's session. Those who want to exploit short-term momentum should consider using a 15-day SMA to book profits. To use this technique, simply remain in the position until price closes below the indicator. More conservative traders may decide to wait for a pullback to previous resistance at $69, which now acts as support.

Chart depicting the share price of Brown-Forman Corporation (BF.B)

Willamette Valley Vineyards, Inc. (WVVI)

Although Oregon-based Willamette Valley Vineyards primarily focuses on the U.S. market through direct and distributor sales channels, it sits well positioned to push into the burgeoning Chinese wine market with its range of premium, super-premium, and ultra-premium products. As of Aug. 19, 2020, Willamette Valley Vineyards stock has a market value of $31.13 million and is trading nearly 11% higher over the past three months, outperforming the industry average by around 7%. Year to date, the shares have slipped 5.53%.

The stock staged a sharp recovery rally between March and early May before trading sideways for several months. More recently, price crossed back above the 200-day SMA, with an intraday dip to the indicator Tuesday met with solid buying interest. Active traders who enter here should look for a test of horizontal line resistance at $7.30 while protecting downside with a stop-loss order placed somewhere beneath yesterday's low at $6.27.

A sideways trend is the horizontal price movement that occurs when the forces of supply and demand are nearly equal.

Chart depicting the share price of WVVI.

Disclosure: The author held no positions in the securities mentioned above at the time of publication.