The fear driving pandemic and mind-numbing quarantine has people on the brink of hysteria. Alcohol has been taking the edge off during these anxiety-ridden times. Booze sales are flying this month, and online delivery services are a primary catalyst.
Alcohol Delivery Apps
With the majority of the US stuck at home, we have never relied on technology more. Alcohol delivery apps are one such example with Drizly, a privately held booze delivery app, seeing a 300% uptick in sales from earlier in the year. Publicly traded companies that are capitalizing on the massive expansion in mobile booze delivery include Uber Eats UBER and GrubHub GRUB.
This quarantine is conditioning people to start using technology for all their needs, and I expect these delivery services to continue driving their toplines even after the quarantine has lifted.
Virtual Happy Hour
Bar closures and social distancing has been inspiring a new way to drink without feeling like a lonely alcoholic: virtual happy hour. For those of you unfamiliar, a virtual happy hour is when everyone grabs their drink of choice and jumps on a video conference call, allowing people to enjoy a drink in a (virtual) social setting while maintaining a safe physical distance.
This responsible social bonding is only made possible by video conferencing technologies like Zoom ZM and Skype MSFT.
Alcohol Stocks
Alcohol stocks have been punished unjustly during this recent downturn with alcohol equities having tumbled roughly 34% since the beginning of the year, underperforming the S&P 500 by 15 percentage points.
Liquor stores have been qualified as essential businesses because they are such big money makers for the government. Alcohol sales should at least maintain if not grow during this quarantine.
There is a positive correlation between alcohol sales and unemployment rates (as depressing as that may sound). With unemployment figures expected to spike in the coming months, I suspect that the alcohol companies will see a boost in revenues.
My alcohol stock pick is Constellation Brands (STZ), despite their ownership of the recently infamous Corona beer. STZ has a broad portfolio of iconic beers, wines, and spirits that have driven topline growth for 8 consecutive years. The firm is producing strong-growing free-cash-flows giving the company flexibility to invest in long-term organic growth.
Constellations is hedging its bets with its partial ownership of Canadian marijuana company, Canopy Growth CGC. This hedge has been working against STZ thus far, with CGC having plummeted in value over the past year. Still, I am confident that this long-term investment will pay-off once the industry progressively gains traction in Canada and is federally legalized in the US.
STZ has fallen over 22% since the beginning of the year, to its lowest price in over 3 years. STZ is now trading 23% below its average price target. I believe that this recent market turndown has allowed investors to buy this alcohol all-star at a discount.
Take Away
Remember that these are very rocky market waters, and volatility is expected to remain high until this pandemic can be controlled. There is an opportunity in alcohol sales and delivery, but I wouldn’t put on any substantial equity positions at the moment. The best strategy during times like these is to average down when the market breaks.
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