Raise Your Glass to These Wine Stocks
Brenda is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Editor's Note: This original article stated that Brown-Forman's EPS was lower year-over-year. That is incorrect, this version has been modified. Motley Fool apologizes for the error.
Here in Silicon Valley, many a glass of Cabernet is raised to toast a business deal, a wedding, or simply the gathering of old friends. Many Silicon Valley "veterans" retire up North to repeat their success in the growing wine industry, creating a whole new influx of money, talent, and ideas.
The wine craze shows no signs of stopping, but unfortunately there are only a few publicly traded wineries in North America to choose from. Another way to invest in wine (and the safer way to go) is to choose the larger, more secure beverage companies that have significant holdings in major wineries, three of which are detailed below.
Although Constellation Brands (NYSE: STZ) doesn't represent a "pure" wine investment (it is a wine, beer, and spirits company), it does give the wine-savvy investor the opportunity to invest in Napa Valley wines. Constellation's brand portfolio includes some Napa valley labels that are household names in SIlicon Valley - such as Robert Mondavi, Clos du Bois, Blackstone, Estancia, and Ravenswood. This company appears to be a mixed bag in the eyes of investors as it has a CAPS rating of 3, and Fools and analysts alike either love it or hate it. Given the huge brand portfolio, the popularity of its premium wine brands such as Ravenswood, Robert Mondavi, and Clos du Bois (my very favorite Merlot label), and great cash flow numbers (245.7M change in cash annually, announced at the last year end period, it has my vote. Those who hate it cite top-heavy management and slower growth rates than the valuation might indicate. During the last earnings announcement, the CEO mentioned some higher grape costs creating margin pressure (margins are now around 50% total, quite respectable for a beverage company), but stated that his strategy will be to increase market share for the premium wine brands. I'll drink to that!
Beverage giant Diageo (NYSE: DEO) is best known as the company behind Bailey's; it is a little known secret that it also owns Beaulieu VIneyards and Sterling Vineyards through its UDV Guinness subsidiary. Both brands are premium and well-distributed to higher end grocery stores and restaurants, at least throughout the West. Diageo as a whole is highly diversified within the alcoholic beverage field, and owns such well known brands as Guinness, Smirnoffs, J&B, and Tanquerey. A British company, Diageo is traded in 180 countries - with primary volume coming from the US New York Stock Exchange and the London Stock Exchange.
Providing the best of both worlds, Diageo both pays a dividend (current yield is at 2.4%) and has had stock price performance that outstripped the Standard and Poors for the last year. The CAPS rating is a 4 out of 5, and most Fools like its geographic reach, brand diversity, longevity, and marketing strength. There are some concerns that it could be a tad overvalued - the stock is trading north of $121 per share today and has a price/cash flow ratio of 19.6 - but for the most part, Diageo is a solid blue chip choice. I also like its low debt position, ability to innovate new brands and drinks, and willingness to overhaul older, tired brands when the time is right.
I personally love Sterling Wines and the nice little gondola ride up the hill to the tasting rooms, so I would love to invest in Diageo to have a very small ownership stake in one of my favorite places.
It will probably be a surprise to many, but the popular Sonoma Cutrer winery as well as Korbel Champagnes are owned by good old Brown-Forman (NYSE: BF-B); manufacturer of our old college friend, Jack Daniels. Another wine-related revenue stream for Brown-Forman is oak barrels, which is responsible for that nice, rich taste found in premium wines. Brown-Forman has a healthy CAPS rating of 4 out of 5; as one foolish CAPs commentator pointed out, "Jack never goes out of style." So our friend Jack won't make us rich (as many have learned while consuming too much of a good thing), but investing in him will give us some good, long term and stable capital appreciation.
In summary - alcohol stocks make good investments in both good and bad times. In the good times, we celebrate. In the bad times, we cry into our beer.....or wine....
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Brenda Johnson has no position in any stocks mentioned. The Motley Fool recommends Diageo plc (ADR). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!