Have you been drinking wine during the coronavirus lockdowns? Of course you have and so has the rest of America. Alcohol consumption has skyrocketed since the outbreak forced citizens out of their offices and into their homes indefinitely. U.S. alcohol sales increased 55% during the first week of extended lockdowns and wine sales were up 42% on a year-to-year basis. That’s a great reason for investors to look at wine stocks.
If you want to invest in companies that make alcoholic beverages like wine, you have no shortage of choices. Many of America’s favorite brands are produced by a handful of large companies that trade on U.S. exchanges.
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Alternatives to Wine Stocks
Overview: Wine Stocks
Companies that produce wine, beer and liquor reside in the consumer staples sector. You’ll sometimes hear market watchers refer to this sector as consumer defensive since they sell products that have relatively flat sales. Demand for food and alcohol doesn’t change much on a daily or yearly basis, so these companies aren’t looking to spend big on research and development or new ventures.
Wine stocks are usually stable, dividend-paying companies and consumer staples tend to outperform during recessions.
Wine is just a small sliver of sales from beverage giants, but several stocks on our list make their mark purely from what comes out of the vineyards. If you want to invest in consumer staples stocks that produce alcoholic beverages like wine, a forced recession from nationwide quarantines is as good a time as any.
Best Online Brokers for Wine Stock
A few of the stocks on our list are thinly traded, so you’ll need to make sure you find a broker that has shares available of the companies you want to buy. We didn’t include any OTC stocks or shares on foreign exchanges, but just because a stock trades on the NYSE doesn’t mean shares are abundant at every broker.
Before opening a new brokerage account, do a little digging and make sure they have shares available of all the stocks you intend on purchasing.
Features to Look for in Wine Stocks
- Brand diversification: A key component for success in the consumer staples sector is the availability and popularity of name brand items. For wine and alcohol companies, the name brand is crucial. For example, Americans don’t just want whiskey — they want Jack Daniels or Johnny Walker. Strong brands drive sales for companies where product demand is inelastic like consumer staples.
- Gross margins: For nongrowth-focused stocks like consumer staples, looking at overall revenue doesn’t paint a clear picture. Companies that sell staples should instead be judged by their gross margins, which can be calculated by subtracting the costs of producing goods from net sales revenue. Companies with high gross margins get more bang for their buck when it comes to capital because they keep a higher percentage of the gross profits.
- Returning cash to shareholders: Alcohol producers aren’t huge innovators and many don’t desire the massive growth found in the tech sector. Instead, these companies make a habit of returning cash to shareholders in the form of dividends or buybacks. The Invesco BuyBack Achievers ETF (NYSE: PKW) is one example. If you’re investing in wine stocks, be sure to look for companies with a history of raising dividends or repurchasing shares.
Top Off Your Portfolio with a Taste of Wine Stocks
With most of the world’s nations locked in quarantine, alcohol consumption has increased significantly. Whether that’s good for society can be debated another day, but beer, liquor and wine sales are up and that’s a boost for beverage producers operating in a usually dull sector. Investing for the long-term means finding quality companies, not just those getting a momentary boost from an untenable global situation.
Beverage producers face inelastic demand for their products. Despite the recent trend, most people consume alcohol at a constant rate. Revenue doesn’t fluctuate in any type of consequential way most quarters, so these firms must focus on margins to improve profits and return cash to shareholders.
The best companies in this sector will have a diverse selection of brands and a laser-like focus on improving margins. If you’re investing for the long term, look for companies with a history of raising dividends when adding wine stocks to your portfolio.
Frequently Asked Questions
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Wine stocks are shares in companies that are associated with the wine industry.
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Because wine is a consumable that people continue to drink, wine stock is considered a good investment.
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Benzinga offers a list of the best wine stocks above.
