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Top Alcohol Stocks: The Year Booze Came Back


With up-market sales are on the rise, it's an enticing time to add some bottle service to your portfolio.

The recession hit the booze industry almost as hard it hit everybody else. All that bad news may have driven many of us to drink, but post-2008, we were downing the cheap stuff, switching out top-shelf brands for supermarket vodka. Alcohol sales declined overall in 2009 and into 2010, especially for premium brands, which makes 2011 an enticing time for adding some bottle service to your portfolio. Up-market sales are on the rise as customers reach for the high-end hooch once more, so let us suggest some spirit-fueled companies poised to make a big splash:
1. Diageo (DEO), with a library of names ranging from Guinness to Johnnie Walker to Smirnoff -- all market leaders in their categories -- is the world's largest alcoholic beverage conglomerate. Aside from producing the top-selling brands in almost every conceivable form of firewater -- did we mention Captain Morgan (rum), Bushmills (Irish whiskey), Gordon's (gin), or Bailey's (liqueur)? -- Diageo is also the world's biggest producer of Scotch, operating a vast range of single malt distilleries and blending plants, while holding the highly prized and collectable stock of many closed Scotch distilleries. It's been experiencing some tough times in Europe lately, as the ongoing Eurozone implosion has affected consumption, but North American and Asian sales are on the rise, and analysts predict a 2011 acquisitions spree by the conglomerate (say hello to their little friend Jose Cuervo, the world's number-one selling tequila), after ten years of relatively little expansion.
2. The US recently became the world's largest consumer of wine, with 2010 seeing a 4% increase that helped the country beat France for sheer volume (per capita is a different story, though). It's now a $30 billion industry, with some 61% of wines consumed coming from domestic producers in California. As well, exports of American wine jumped by 25%, a remarkable rebound and part of a decade-long trend that sees US winemakers gaining increasing commercial clout oversees. So raise a glass for Constellation Brands (STZ), the world's largest wine company and home to well-known names such as Robert Mondavi, Woodbridge, and Clos du Bois, not to mention beer brands such as Corona and Negra Modelo. It has been on a premium tear over the last decade or so, snapping up high-end names while divesting value spirits and low-end wineries such as Inglenook and Paul Masson. All this restructuring -- much of it debt-financed -- has left the market bearish on Constellation, but once the strain of reshaping itself has been worked through, the company will be well-positioned to take advantage in a market with a lot of growth potential.
3. Fortune Brands (FO), home to Jim Beam and Maker's Mark as well as a catch-all of home/hardware brands and high-profile golf names such as Titliest, recently announced it was going to spin off its non-booze divisions and focus itself on the hard stuff -- both existing brands and new acquisitions. To that end, its Beam Global Spirits & Wine unit just picked up reality TV star Bethany Frankel's Skinnygirl line of "low-calorie" cocktails. Launched just a year and a half ago with minimal distribution, the brand has quickly become one of the US ready-to-drink cocktail market's biggest sellers, part of a growing trend towards low-calorie spirits that Fortune is eager to exploit. A wise move, as women's alcohol consumption continues to rise, while men's decreases.
4. Owners of iconic brand Jack Daniels, as well as Southern Comfort, Finlandia and several other high-profile spirits, Brown-Forman (BF.B) was knocked around during the recession as its target drinkers went off-brand, but recently posted a 30% improvement over the three months to the end of January compared to the same period last year. The company, which generates 45% of its sales from good-old-boy tipple Jack Daniels, made its gains by selling off non-spirits related divisions -- including luggage and ceramics -- and focusing on international markets.
5. Anheuser-Busch InBev (BUD) is the dominant player in the beer biz, and one of the five biggest consumer products corporations in the world. With a 49% US market share and -- after 2008's merger with inBev -- unsurpassed global reach (it holds the #1 or #2 market position in 19 countries), its sheer size and marketing muscle makes it a sensible long-term choice, along with number two US market leader Molson Coors (TAP). But while their mass-consumption beer-flavored products are a safe if not entirely inspiring option, why not take a flutter on something a little tastier? Craft brewers Boston Beer (SAM), the makers of Sam Adams, is now trading at twice its value from a year ago. S&P is currently giving the stock a bullish 4-star buy rating, and as drinkers raise the bar in 2011, Boston Beer's premium brews will only become more attractive.
No positions in stocks mentioned.
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