Sometimes stock-picking can be as simple as seeing a release of an important company in the industry of a stock you like and gleaning from that release an opportunity to buy.
Everybody knows I get up unnaturally early and one of the benefits is that I see information that simply gets overlooked. Early this morning, for example, I read a release for a gigantic liquor company, Pernod Ricard (PDRDY) talking about, and I quote "the pace of the recovery is proving stronger than expected."
This maker of such high-end liquors as Absolut Vodka, Chivas Regal, Glenlivet scotch as well as Jameson Irish Whiskey, and Jacob's Creek and Kenwood wines, says that drinking outside the home is "accelerating as restrictions are progressively lifted" and numbers are going up with it.
Now Pernod Ricard has already happened, but which company looks like that, but with a kicker? I think it is Constellation Brands (STZ) with $2.5 billion in high-end spirits and $6 billion in beer -- think Modelo, Corona and Pacifico.
Constellation has a catalyst: It reports next week, so we know we don't have to wait long for something good to happen here.
Now let's go from empirical to anecdotal and back again. I own a Mexican tavern that sells a ton of Constellation's product, whether it be Casa Noble tequilas, or Modelo Negro, or Pacifico and the Coronas. I see the sales figures year-over-year and they are astounding and here I am talking about 2019 over 2021 because we were made to close because of the pandemic.
I talk to a number of bars in a similar situation, still very New York-centric, but I have a bit of a bead around the country. Sales are incredibly strong, much stronger than anyone thought.
Meanwhile, we know that the company has launched its Corona hard seltzer and there are early signs that it's a big hit.
As far as its spirits, Svedka vodka, High West whiskies and premium wines look enough like Pernod Ricard to make me think that the similarities are too great to ignore.
Now one of the big knocks against Constellation is that it paid too much for Canopy Growth (CGC) , its foray into cannabis. I think that's a legitimate concern, but it is also historical. I look at it another way. I think this is the last quarter where people aren't focusing on pot legalization. It could be very big in the fall at election-time. Constellation is a huge cash generator. It's been able to buy back shares and pay down debt. It's been prudent the whole way, though, even to the point that when the Canopy spend grew out of control the company bit the bullet and replaced the CEO with the very tough, knowledgeable CFO of Constellation itself. The stock is up only 2% for the year and down 20 points from its high.
Now, of course, there is no such thing as a sure thing is this business. We can't just say, oh, what's good for the goose of Pernod Ricard is good for the gander of Constellation, but you have to bet the similarities are there for a third of the company and the rest, beer, is a quintessential reopening beverage worth betting on.
