Yahoo Finance Is MGP Ingredients, Inc. (NASDAQ:MGPI) the Best Whiskey Stock?
We recently compiled a list of the 10 Best Alcohol Stocks to Buy Now. Since MGP Ingredients, Inc. (NASDAQ:MGPI) 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.
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.
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:
8. MGP Ingredients, Inc. (NASDAQ:MGPI)
Number of Hedge Fund Holders: 22
If you’re a whiskey lover, you’ve almost certainly tried the offerings of MGP Ingredients, Inc. (NASDAQ:MGPI), knowingly or not. This Indiana distillery has fueled the modern American whiskey boom by supplying distillers like High West, Smooth Ambler, WhistlePig, Angel’s Envy, Bulleit, and many others.
The company has boasted a massive increase in earnings over the last few years. In 2019, MGP Ingredients, Inc. (NASDAQ:MGPI) declared revenue of $362.75 million, while by 2023, the company’s revenue had jumped up to $836.52 million – an increase of over 130%. The company completed the closure of its Atchison distillery in December 2023 due to headwinds facing its grain-neutral spirits, and as a result, its consolidated sales in Q1 2024 decreased by 15% compared to the prior year period to $170.6 million. MGP’s branded sales were also down 3% driven primarily by the temporary shutdown of its Lux Row distillery in Bardstown, KY, to complete the distillation expansion, as well as expected declines in its mid and value branded spirits price tiers. Due to the lower sales and a 10% decrease in gross profit in the first quarter, the stock of MGPI has witnessed a massive 53% decrease in share price since the beginning of the year. SouthernSun Asset Management LLC, an investment management firm, revealed the following reason for the fall in share price in its Q1 investment letter:
“Management noted that 2023 new distillate sales outpaced aged distillate sales for the first time since 2020, and they expect this trend to continue. New distillate carries a lower gross margin profile than aged, but customers contract for new distillate volumes for several years as opposed to aged distillate, which is primarily sold in the spot market. Management believes the shift to more new distillate sales will provide greater visibility into cash flows and lower the risk profile of the distilling solutions segment. However, the market seemed to react negatively to this news based on the slightly lower gross margin expectations.”
However, the firm remained hopeful and added:
“We believe the company has ample opportunity to grow both the top line and margins, as the team continues to build out the portfolio of premium, super premium and ultra-premium products in its branded spirits segment. We expect 2024 to be another year of investment as the company builds new warehouses to support growth in both the distilling solutions and branded spirits segments. These investments are supported by strong cash generated by the business, and we believe they will produce even stronger cash flow in 2025 and beyond.”
The stock of MGPI was held by 22 hedge funds at the end of Q1 2024 in the Insider Monkey database, with a collective stake value of over $112 million.
Overall, MGPI ranks 8th 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 MGPI 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 MGPI but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
