VALUE: After Hours (S07 E44): Why Liquor Stocks Are Screening Cheap Again

During their recent episode, Taylor, Carlisle, and Value Stock Geek discussed Why Liquor Stocks Are Screening Cheap Again. Here’s an excerpt from the episode:

Nowadays, those are obviously not cheap anymore. [chuckles] Nowadays, you’re seeing a lot of liquor companies actually are popping up a lot in those screens that I’ve been running. I’m about to do a re-balance in early January. It looks like a lot of those names are going to enter that universe, like Brown-Forman, and Diageo, where there’s been a lot of talk about how Zoomers aren’t really drinking as much as previous generations.

You also saw sales decline after COVID. There was a big spike during COVID, and now it’s returned to normal. I think people are just extrapolating that trend. So, I think that’s what you’ll see a lot of these days. But yeah, overall, I think there’s a lot of interesting little opportunities out there.

Jake: A drunk pig in the python? Is that a thing?

Value Stock Geek: [laughs] Maybe. Maybe.

Tobias: I saw that alcohol consumption is back to 1930s levels or something like that.

Jake: What, they’re in prohibition?

Tobias: Well, prohibition is the– Isn’t that the 20s? No, that’s the Roaring 20s, I don’t know.

Value Stock Geek: Yeah, the 20s, and then they repealed it in 32, is what I think it was one of the– Or, 33. It was one of the first things FDR did after he got elected was repeal prohibition.

Tobias: So, we’re drinking as little as we did in prohibition?

Value Stock Geek: The charts I’ve seen go back to the 1960s. and we are at a low. But if you zoom out, it’s more of like we’re down 3% or something from total alcohol consumption.

Tobias: We’re down 3%. [chuckles]

Value Stock Geek: Yeah. I think people read into it, like they’re saying, “Zoomers don’t drink.” I don’t know if that’s necessarily true. There is a lot of concern that marijuana is crowding out alcohol spending. That’s a big concern as marijuana becomes more legal. But overall, I think things are pretty stable. I think people are still going to be drinking alcohol 10 years from now, maybe a little bit less. But I don’t think there’s been this mammoth societal change.

I think it’s more just about alcohol consumption got really high during COVID, because people were locked up and sales went through the roof, and now they’re normalizing and maybe people are adjusting their habits a little bit. But I think it’ll go back to normal.

Tobias: Used to be this idea that booze was pretty recession resistant. Because when people go through bad times, they tend to drink more.

Jake: Yeah, let’s get the unemployment numbers up [chuckles] and then the booze will come back.

Tobias: Is it crowding up by weed, or is it a lack of money in Zoomers, or is it like everybody’s online and they’ve seen all the studies and they’ve decided that they don’t want to drink as much? What do you think’s the causing that little trend, that little down drip anyway?

Value Stock Geek: I really think it’s just about things reversing after COVID. I think it’s really just more about that. I do think those longer-term concerns are valid and are something to keep an eye on. But I don’t think there’s enough evidence to say that people have really significantly changed their habits.

I think more of like people are looking for an explanation for the price action, and they’re creating these narratives like, “Zoomers don’t drink. They’re just looking at the screens all day, and they’re not going to bars anymore. Everybody’s replacing marijuana with alcohol.” I think they’re just crafting a narrative that I don’t really think– There’s some truth to it, but I think it’s being exaggerated.

Tobias: Is it impacting any part of the market more than any other? How do hard liquors, spirits hold up against beer and things like that?

Value Stock Geek: Yeah, there was a ton of interest over the Seltzers. I know in the early 2020s, if you look at Sam Adams stocks, that went through the roof because of their hard Seltzer brand. Yeah, I think that’s just more of an alternative to traditional beer. I think the alcohol companies are adapting and adjusting to that. And then, there’s the traditional spirits, which is more of Diageo and Brown-Forman’s wheelhouse.

Tobias: It’s funny, how many charts went crazy through that 2020, 2021, 2022 period and have come back to earth and how that’s hard to– It’s hard to tease out from that, like, what is secular and what is part of that? I don’t know whether 2022 pulled a whole lot of demand forward, or it was just a whole lot of stimulus through that period.

Value Stock Geek: Yeah, you’re right. There’re so many charts that look like that where it is really difficult to discern what’s a secular trend, what was just a COVID thing, are things just returning to normal. You can see it in all kinds of things. We saw that in lumber. That was a pretty good example. [chuckles]

Jake: Yeah, I remember that.

Value Stock Geek: Yeah. Where there was this big spike. And then, again, there’s a narrative that goes along with that, “Oh, we’re in a housing shortage and lumber prices need to go up,” and blah, blah, blah. I feel like anytime you see something do well or do poorly, it’s almost like people make up some secular trend to go along with it. It’s usually not. It’s usually just a cyclical thing.

You can find out more about the VALUE: After Hours Podcast here – VALUE: After Hours Podcast. You can also listen to the podcast on your favorite podcast platforms here:

VALUE: After Hours (S07 E44): Why Liquor Stocks Are Screening Cheap Again

Read next