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Don’t Turn to Booze During Market Volatility; Invest in Booze Stocks

It’s thought that during turbulent market times like these, investors’ nerves are shot out. To calm themselves, many may increase, or start, their consumption of alcohol. This is why we often see the value of so-called sin stocks such as those from alcohol makers increase.

Considering the volatility in the markets right now, expect to see the stocks of the makers of beer, wine and liquor soar. Since the markets around the world began to tank due to Brexit last week, there are a few sin stocks that have ticked upward. Furthermore, any losses have been minimal. The mere fact that they have been up while most of the Dow has been down, speaks volumes for their resilience.

Here, we’ll discuss three spirits companies that you may consider as valuable investments, instead of seeing them as self-medicating tools.

 · Jack Daniels

First up is Brown-Forman (NYSE: BF-A). Its Jack Daniels family of brands has contributed greatly in helping to grow the company’s market cap to roughly $8.2 billion.

Last week, the company bearishly breached its 50-day moving average. The stock has outperformed over the last year, as well as over the last month, making it a leader among its peers. Those peers include Constellation Brands (NYSE: STZ) and Diageo (NYSE: DEO).

Brown-Forman’s share price performance has been -4.09% over the last 12 months, but that is still above its peer median of -7.12%. The 30-day trend in its share price performance of -1.25% is also above the peer median of -1.92% suggesting that this company is a leading performer relative to its peers, according to Capital Cube.

When the company released its fourth quarter and fiscal year results earlier this month, it reported that its net sales declined 1% to $933 million. Its operating income grew a whopping 212% in the fourth quarter to $726 million. Diluted earnings per share increased 291% to $2.60 compared to the prior-year period.

Its net income for the year grew 56% to roughly $1 billion compared to its growth in 2015.

Earnings per share grew 63% to $5.26 from $3.23. In addition to the extraordinary growth in net income, the company benefits from expanding profit margins, too.

As American whiskey gains more global interest, Brown-Forman has positioned itself to take advantage of that interest by investing capital to expand its capacity. Its strong free cash flow and capital efficiency also position it to deliver top-tier returns for its shareholders.

The company offers a dividend of $1.40, yielding 1.6% per share.

 · Vodka

Diageo, which makes Smirnoff products, was upgraded Tuesday by Societe Generale to hold from sell. It trades at a higher price to book ratio (4.60) than its peer median (3.12), according Capital Cube.

Diageo boasts a market cap of roughly $65 billion. It also pays an impressive dividend of $2.54 per share, with a 2.43% yield.

Other positives for Diageo include a high profit margin, which is about 23.5%. Also, compared to its peers, Diageo’s annual revenues are better than the change in its earnings. Still its revenues have grown more slowly than its peers over the past few years. This is reflected in its high pre-tax margin, notes Capital Cube.

We’ll learn more about Diageo’s performance when it reports its earnings next month.

 · Constellation in the stars

Constellation Brands boasts a market cap of $31 billion.

Its Class A’s current price/book of 4.04, which is about median in its peer group, according to Capital Cube.

Observers have raised concerns that the company could be overinvesting as they see the business having only median returns. Still, it’s relatively high pre-tax margin suggests tight control on its operating costs compared to its peers.

It pays a dividend of $1.60, yielding 1.05%.

Market Realist pointed out that last week that Brown-Forman was trading at a forward price to earnings ratio of 27.6x. So Constellation Brands looks undervalued at its current valuation multiple, especially given the strong sales and earnings expectations compared to those of its peers.

The company reports its first quarter earnings for 2017 on Thursday.

 · In conclusion

Sin stocks don’t only perform well during when there is market turmoil, or when we’re in bear markets. They also benefit from the many celebratory experience people have that entail parties and spirits.

In addition, these companies have consistently paid attractive dividends, as noted about the companies in this piece.

Sin stocks, like all other put upon companies that often draw ire, tend to prosper in times like these. If you have tossed and turned in your sleep and worried endlessly over the past few days over the performance of your investments, consider picking one of these stocks, instead of a drink!

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