With economies all over the world beginning to reopen—some much faster than others—normalcy is starting to look like it's back in town. And with summer coming, the Fourth of July a little over a month away, and picnics and barbecues looking possible once more, many fancies out there lightly turn to thoughts of booze. But booze stocks right now are starting to look like Mayberry on a Sunday night: dry as a bone. Who's most likely to come out ahead? Traders are increasingly backing the King of Beers: Anheuser-Busch Inbev (NYSE: BUD).
The Booze Stock Field Hangover is Terrible
Okay, true; booze stocks, in general, are looking in a bad way right now. The numbers make it pretty clear that this whole market has been ravaged by, well, by something, whether it's coronavirus or people concerned about having enough cash going forward. Some reports say the US savings rate is higher than it's ever been, so people may be buying less booze in general to squirrel away cash to fend off possibly starving to death later.
Whatever the cause, the numbers are disastrous. Molson Coors (NYSE: TAP) is down almost a third at 29%. Diageo PLC (LON: DGE-GB), who handles Smirnoff and Guinness, is down about 14%. Constellation Brands (NYSE: STZ), who handles the sadly-named Corona, is down a little better than 7%. Even that ole Jack Daniels can't stand up, as its parent Brown Forman (NYSE: BF.B) is down 2%. And Anheuser-Busch Inbev is the worst of the lot, down almost 42% so far.
About the only winner in the field is Boston Beer (NYSE: SAM), the folks behind Sam Adams. It's up 43% on the year, which is staggering objectively and almost terrifying relatively. How do you post double-digit gains in a market where everyone else is losing? Yet this wasn't much to help it; Credit Suisse actually downgraded it to “neutral” from “outperform,” likely sensing that that valuation is a little more head than beer.
Who Will Break the Dry Streak?
So knowing what we know so far, what makes Anheuser-Busch Inbev the most likely to snap the dry streak and make its nickname, the King of Beers, more than just clever marketing double-talk? Miller Tabak's chief market strategiest, Matt Maley, offered up some comment on this front. Maley pointed out the fact that, despite the drop almost industry-wide, Anheuser-Busch Inbev is up 16% just since Tuesday. It's lost a little ground today, but it's still made quite a leap.
Moreover, Maley also pointed to its relative strength index (RSI), which suggests that the company is still oversold. Not quite so oversold as it was this time last month, of course—a 16% gain is a 16% gain—but it's still oversold by the RSI's figures. With a key resistance level in sight at the $50 level—it's already butted up against that figure twice in recent memory—it could be poised for a nice shot to the upside in the near-term. Maley did urge caution, though, noting that that key resistance level was a resistance level for a reason, and that investors shouldn't get ahead of themselves buying in before that resistance was broken.
Maley wasn't the only one taking aim at Anheuser-Busch Inbev, either; Chantico Global's founder and CEO Gina Sanchez had good things to say about the company, pointing out its strong operating margins. Sanchez also noted that the company cut its dividend to assure itself sufficient cash flow to weather the storm, which it likely will.
A Little Bit of Fairy Dust in That Beer
All of these are perfectly valid points, but it's likely to take one more thing to shore up Anheuser-Busch Inbev numbers: a return to normalcy. If we walk into summer with people going back to work, able to take vacations that aren't just being holed up in a motel room, able to have pool parties without the neighbors peeping out of their windows with binoculars to catch people who aren't sufficiently social distancing, then that pent-up demand will likely factor in.
Better yet, people will be able to actually enjoy their beer-fueled fun again, as opposed to looking to drown their sorrows in something cheap. That should bring sales rushing back, as people will not only have the inclination to spend on beer, but also the ability, since their jobs will look fairly safe.
Still, things are looking up for Anheuser-Busch Inbev, thanks to improving conditions overall and a good base to rebound from. Only the arrival of fall will tell how Bud's summer went, but it's not all bad so far.
Companies Mentioned in This Article
20 Stocks Analysts Can't Stop Upgrading
As you know, a single upgrade from a broker probably won't be a major game changer for any single stock. But, what if there was a stock that had been upgraded by more than 10 different brokers during the last 90 days?
If ten different brokers have all upgraded a stock within the last few months and the price hasn't skyrocketed (at least, not yet), you would want to take a pretty hard look at it.
It turns out that there are actually 20 different companies that have been upgraded or had their price target increased at least ten times during the last ninety days by more than 10 different brokers. This slideshow lists those companies.
View the "20 Stocks Analysts Can't Stop Upgrading".