Lots of times, people wonder what really drives a stock. How does Nike (NKE), for example, go lower when it reports worse-than-expected numbers in North America and lower future orders, and then higher after the conference call?
The answer? Because people were concerned that the U.S. had high inventories, and in the conference call it became clear it just plain didn't. The inventories are clean, which means less discounting, more full-priced brand new shoes, where the profit margins are high: think LeBron Soldier 10s and Kyrie 2s.
Or General Mills? (GIS) How did that one go up ahead of the Mondelez (MDLZ) -- Hershey (HSY) talks? (Oh, and how lucky was Bill Ackman that the Mondelez news leaked in the last day of the quarter? Phew. What luck, when a big position runs like that? Sometimes I wonder if you can make your own luck. But I guess that's impossible, right?) The answer? The big issue with General Mills has been declining cereal numbers. But because the company took out the artificial ingredients and added gluten-free Cheerios to the line-up, you got a dramatic swing in growth, a double digit swing when no one was expecting it.
Plus, the off-loading of Green Giant for $765 million to B&G Foods -- a great deal for all -- and the on-boarding of Annie's two years ago for $820 million enabled the company to switch its natural and organic percentages in dramatic fashion. If it were to buy Action Alerts PLUS charity portfolio White Wave (WWAV) in a stock-for-stock fashion right now, it might even be majority fast-grow natural and organic. Don't put it past Ken Powell to make that kind of move. He's a tremendous cost cutter. You merger those two, you take out distribution costs, you fix yogurt with it, and voila, you've got a growth powerhouse.
Anyway, that switch in cereal, and not the minuscule organic growth is what drove the stock higher.
Which brings us to Constellation Brands (STZ). This is a company that got very lucky when Anheuser Busch (BUD) merged with Inbev and the Justice Department forced them to spin off domestic rights to Modelo and Corona beers. Now, I know that luck matters ¿ hey, Ackman's slick end-of-quarter save on Mondelez! -- but it's what you do with it that counts. These two beers wouldn't be the fastest growing beers in the country -- up a staggering 15% in organic sales, that's right, 15% -- if Rob Sands, the CEO, and his amazing team didn't figure out a way to harvest them. Plus, Sands took a non-premium beer in Mexico, Pacifico, and turned it into a double-digit grower in America, the craft beer drinker's alternative at those bars without IPAs.
Then he took the profits from those beers and less than a year ago bought Ballast Point, one of the fastest-growing craft beers in the country, for $1.0 billion less than a year ago, and dramatically accelerated sales.
You hear about so many food and beverage companies cutting back costs and shrinking their production because it's really not needed. Not Constellation. It's building the world's largest brewery in Mexico for Corona and Modelo, capable of producing 300 million cases a year, and it's putting up a brand new brewery in Virginia to meet Ballast Point demand. Get this: Constellation is a huge beneficiary of the strong dollar, because it's importing beer made in a country with the pathetic peso, a huge windfall.
Now, Sands has taken even more of the profits and bought the fastest-growing wine companies in the country, Meomi for $315 million and Prisoner for $285 million, making him king of the super luxury brands and pinot noir, which is the fastest growing varietal. At the same time, he's managed to work in a buy of Casa Noble tequila, the best-selling tequila at Bar San Miguel by the way, which, yes indeed, is the fastest growing tequila in the country.
So can we at least give Sands the benefit of the doubt that it wasn't all luck, but it's what you made of luck? That's how you get your stock to go from $117 to $165 in a year.
My bottom line? Stocks can go higher because inventories have cleaned up, or because of self-help, or because of a rate of change of the growth rate. It doesn't matter. The latter's the best, but it's also the scarcest. When you find it, though, it's the best of the best, with the rest just struggling to repeat the glory days.