Did you drink wine during the coronavirus shutdowns? Of course you have and the rest of America too. Alcohol consumption has skyrocketed since the outbreak forced citizens out of their offices and into their homes indefinitely. U.S. liquor sales rose 55% in the first week of extended shutdowns, and wine sales were up 42% year-over-year.
If you want to invest in companies that make alcoholic beverages like wine, you have plenty to choose from. Many of America’s favorite brands are produced by a handful of large companies that trade on US exchanges.
Alternatives to Wine Stocks
Securitized wine investments
Overview: Wine stocks
Businesses that produce wine, beer, and spirits belong to the consumer staples sector. You will sometimes hear market watchers refer to this sector as consumer defensive, as they sell products with relatively stable sales. The demand for food and alcohol does not change much on a daily or annual basis, so these companies are not looking to spend a lot on research and development or new ventures.
Wine stocks are generally stable, dividend-paying companies and consumer staples tend to outperform during recessions.
Wine is only a small part of the beverage giants’ sales, but several stocks on our list stand out solely for what comes out of the vineyards. If you want to invest in consumer staple stocks that produce alcoholic beverages like wine, a nationwide forced quarantine recession is a good time.
Best Online Wine Stock Brokers
A few of the stocks on our list are thinly traded, so you’ll want to make sure you find a broker that has stocks of the companies you want to buy. We haven’t included over-the-counter stocks or stocks in foreign markets, but just because a stock trades on the NYSE doesn’t mean stocks are plentiful at every broker.
Before you open a new brokerage account, do a little digging and make sure they have shares available of all the stocks you intend to buy.
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Features To Look For In Wine Stocks
- Brand diversification: A key element of success in the consumer staples industry is the availability and popularity of branded items. For wine and liquor companies, the brand name is crucial. For example, Americans don’t just want whiskey, they want Jack Daniels or Johnny Walker. Strong brands drive sales for companies where demand for products is inelastic, such as consumer staples.
- Gross margins: For non-growth-oriented stocks like consumer staples, looking at overall earnings doesn’t paint a clear picture. Companies that sell commodities should instead be judged on their gross margins, which can be calculated by subtracting the cost of producing goods from net sales. Companies with high gross margins get more bang for their buck in terms of capital because they keep a higher percentage of gross profits.
- Returning cash to shareholders: Alcohol producers are not great innovators and many do not want the massive growth of the technology sector. Instead, these companies are making a habit of returning money to shareholders in the form of dividends or buyouts. One example is the Invesco BuyBack Achievers ETF (NYSE: PKW). If you’re investing in wine stocks, be sure to look for companies that have a history of increasing dividends or buying back shares.
Complete your portfolio with a taste of wine stocks
With most countries in the world under quarantine, alcohol consumption has increased dramatically. Whether that’s good for society can be debated another day, but sales of beer, liquor and wine are up and it’s a boost for beverage producers operating in a generally lackluster industry. Investing for the long term is about finding quality companies, not just those that get a momentary boost from an unsustainable global situation.
Beverage producers face an inelastic demand for their products. Despite the recent trend, most people consume alcohol at a steady rate. Revenues do not fluctuate consecutively most quarters, so these companies must focus on margins to improve profits and return cash to shareholders.
The best companies in this industry will have a diverse selection of brands and a laser focus on improving margins. If you’re investing for the long term, look for companies that have a history of increasing dividends when you add wine stocks to your portfolio.
Frequently Asked Questions
Wine stocks are shares in companies related to the wine industry.
Are wine stocks a good investment?
Because wine is a consumable that people keep drinking, wine stock is considered a good investment.
Which wine stocks are the best?
Benzinga offers a list of top wine stocks above.