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Is Brown-Forman Corporation (NYSE:BF-B) the Best Liquor Stock to Invest in?

We recently compiled a list of the 10 Best Alcohol Stocks to Buy Now. Since Brown-Forman Corporation (NYSE:BF-B) is part of the list, we have discussed the stock in detail.

The Global Alcohol Industry:

In 2019, the global alcohol consumption, measured in liters of pure alcohol per person of 15 years of age or older, was 5.5 liters, which is a 4.7% relative decrease from 5.7 liters in 2010.  As we mentioned in our article – 20 Most Consumed Alcohols in the World – the global alcoholic beverages market size was valued at $1.62 trillion in 2021 and is projected to reach $2 trillion by 2031, with a CAGR of 2.2% during the forecast period.

The market is likely to be driven by the increasing global young-adult demographic, coupled with high disposable income and consumer demand for premium/super-premium products. Globally, beer drives the market for alcoholic beverages. Regionally, North America and Asia-Pacific are expected to dominate the market during the forecast period.

Resilience of the Beverage Alcohol Industry: 

As reported by Forbes, an analysis by Goldman Sachs has revealed that beer and spirits volumes in the American market have shown little correlation with economic growth. Their sales are more related to the general trends of alcohol consumption per capita rather than the general state of the economy. This is because beer and spirits are often seen as affordable luxuries or even staples.

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Similarly, a Cambridge University study focused on business cycles and alcohol consumption across 24 countries over more than 50 years also found no symmetric reduction in beer and spirits consumption during recessions. The decreasing levels of average per capita income lead to very small changes in gross alcohol, wine, and beer consumption. In fact, the surge in unemployment during recessions could instead trigger an increase in the average alcohol intake. Moreover, it was also revealed that those who enjoy drinking tend to drink a lot more during the good times.

However, during times of economic difficulty, consumers tend to drink more at home as it is cheaper than hitting the bars. So while on-premise businesses suffer a decline in sales, liquor stores and online alcohol retailers tend to profit heavily.

Americans drank more alcohol also during the pandemic and this was reflected in the resultant imposts collected by the national kitty. Alcohol tax revenues collected by the U.S. Treasury Department rose by 8% in the fiscal year that ended on Sept. 30, 2021, compared to the previous year, and remained well above pre-pandemic levels.

Alcohol As a Lucrative Investment Asset: 

Rare whiskeys are incredible as investment vehicles. Aptly named ‘Liquid Gold’, this beloved liquor can preserve and even increase in value during economic instabilities, inflationary periods, and recessions. One simply cannot forget about the bottle of The Macallan 1926 Valerio Adami that sold in auction for $2.7 million in November 2023, or the 1975 cask of Ardbeg single malt which was acquired by a private collector in Asia in 2022 for over $20 million, more than double the amount Glenmorangie paid for the entire Ardbeg distillery and all its stock in 1997.

The Rare Whisky 101 Apex 1000 Index tracks whiskeys that are highly sought after for collection. It has gained over 383% since 2013, against 286% gains by S&P’s famous benchmark of the top 500 companies for the same period. The RW Japanese 100 Index, on the other hand, includes 100 collector's bottles from Japan, and since 2015, the index has seen gains of more than 396%. The index includes bottles like Ichiro's Malt 'Card' Ace of Spades, Ace of Diamonds, and King of Hearts, among others.

Similarly, if we enter the realm of rare wines, the Liv-ex Burgundy 150 Index tracks the ten most recently physical vintages for 15 white and red Burgundy, including six Domaine Romanée Conti labels. The index has gained over 102% over the last five years, against around 88% gains made by the broader market during the same period.

Is Brown-Forman Corporation (NYSE:BF-B) the Best Liquor Stock to Invest in?
Is Brown-Forman Corporation (NYSE:BF-B) the Best Liquor Stock to Invest in?

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Methodology:

To collect data for this article, we scanned Insider Monkey’s database of 920 hedge funds and picked the top 10 companies operating in the alcohol sector with the highest number of hedge fund investors. When two companies had the same number of hedge funds investing in them, we ranked them by the revenue of their last financial year instead. Following are the Best Alcohol Stocks to Buy According to Hedge Funds:

6. Brown-Forman Corporation (NYSE:BF-B)

Number of Hedge Fund Holders: 30

Brown-Forman Corporation (NYSE:BF-B) engages in the production, distillation, bottling, import, export, marketing, and sale of a wide range of alcoholic beverages. This includes spirits, wines, whiskeys, flavored liqueurs based on whiskey, pre-mixed and pourable products, cocktails, vodkas, tequilas, champagnes, brandy, Bourbons, and liqueurs.

BF-B reported mixed Q4 (ending 30th of April 2024) results as its earnings per share rose 31% YoY to 56 cents and beat the Zacks Consensus Estimate of 42 cents. However, the company’s revenue of $964 million was around 7.8% less than the same quarter last year and missed the consensus estimate of $1.03 billion. This didn’t sit well with investors and Brown-Forman saw its share price fall by around 6% on June 5th. A major factor contributing to the decrease in revenue is a 10% drop in the sales of Jack Daniel’s in 2024, while the overall liquor portfolio was also down by 8%. The company is facing challenges mostly due to a subdued, inflation-driven consumer demand and hence also increasingly cautious retailers and distributors. But this is not something that is unique to BF-B.

However, there was positive news from emerging markets, as net sales there grew 5% on a reported basis and 8% on an organic basis, led by solid growth of New Mix in Mexico and Jack Daniel’s Tennessee Apple in Brazil. Moreover, the travel retail channel also delivered an 8% growth in net sales on a reported basis and 6% on an organic basis. The company is also benefiting from the rising spirits RTD trend, as sales of New Mix improved 32% on a reported basis and 17% on an organic basis, driven by an increase in prices. Brown-Forman’s gross margin has also improved by 150 points on an annualized basis compared to fiscal year 2023, highlighting the strength of its increasingly premiumized portfolio.

Shares of Brown-Forman Corporation (NYSE:BF-B) were held by 30 hedge funds at the end of Q1 2024, with Fundsmith LLP boasting the largest stake of around 11.46 million shares, valued at $591.5 million.

Overall, BF-B ranks 6th on our list of the best alcohol stocks to buy. You can visit 10 Best Alcohol Stocks to Buy to see other alcohol stocks that are on hedge funds' radar. While we acknowledge the potential of BF-B as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than BF-B but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

READ NEXT: Analyst Sees a New $25 Billion "Opportunity" for NVIDIA and Jim Cramer is Recommending These 10 Stocks in June.

Disclosure: None. This article is originally published at Insider Monkey.