How to Profit from America’s Preference for Alcohol

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Some investment strategies have a short buying opportunity, while others are seasonal, cultural, or even considered recession-proof. On the other hand, some investors avoid certain buying opportunities because they disagree with them ethically.

Love it or hate it, from an investing standpoint, alcohol represents a strong buying opportunity for growth- and income-starved investors. But because of American’s changing tastes, some alcoholic beverage companies have better long-term growth potential than others—and this could present investors with a great buying opportunity.

Beer, the thirst-quenching powerhouse of the 1990s, is losing its grip on America’s youngest drinkers to wine. In 1992, almost half (47%) of all Americans said they prefer to drink beer, while only 27% said wine and 21% drank liquor. (Source: Jones, J.M., “U.S. Drinkers Divide Between Beer and Wine as Favorite,” Gallup.com, August 1, 2013.)

A lot can happen in two decades. Beer’s lead over wine has slipped dramatically, and the two are running neck and neck for supremacy; beer is now the alcoholic beverage of choice for just 36% of American drinkers, while wine has soared to 35% (liquor is up slightly at 23%).

What’s behind the radical change in taste? In the 1990s, 71% of adults under 30 years of age said they drank beer most often; today, just 41% say they do. Interestingly, both whites and nonwhites have also turned their backs on beer, which is down nine points to 38% and 19 points to 34%, respectively. The two fastest-growing segments have instead developed a taste for wine and liquor.

That doesn’t mean Americans have completely turned their backs on beer—just certain kinds. Beer took a hit after the Great Recession, but appears to be making a comeback, though much of the rebound has come thanks to the rising interest in small-batch craft beers. This comeback has been paving the way for a number of buying opportunities for investors.

And there is a lot of interest in U.S. craft beer. In 1980, there were eight craft brewers in the U.S. In 2012, the number of breweries in the U.S. topped 2,300 for the first time since the late 1800s. As of June 1, 2013, there are more than 1,500 breweries in various stages of development; that’s a far cry from the dire prediction of the late 1970s, when industry experts predicted there would only be five brewing companies in the United States. (Source: “History of Craft Brewing,” brewersassociation.org, last accessed August 6, 2013.)

There are a lot of interesting buying opportunities in the alcoholic beverages industry for investors to consider. One buying opportunity is Craft Brew Alliance, Inc. (NASDAQ/BREW). Craft Brew Alliance sells under the brands Redhook Ale Brewery (Seattle, Washington), Widmer Brothers Brewing (Portland, Oregon), and Kona Brewing (Kona, Hawaii). The company’s share price has gained 43% since the beginning of the year, and is approaching a resistance level near $10.00.

Investors might find another buying opportunity with VICE Investor (VICEX). The fund has assets of more than $150 million invested in 98 different large- and mid-sized companies. The fund is up more than 15% year-to-date and 30% year-over-year.

If you’re looking outside of the U.S. for a great diversified buying opportunity, you might want to consider Corby Distilleries Ltd. (TSX/CDL-A). Corby Distilleries owns Wiser’s Canadian Whisky, Lamb’s Rum, and Polar Ice vodka, and also earns commission by representing alcohol brands such as Chivas Regal, Glenlivet, Jameson Irish whiskey, and Kahlua. As a point of interest, Corby also has over $97.0 million in cash and no long-term debt.

While no investment is truly recession-proof, those looking for a well-balanced strategy could consider adding any one of these three buying opportunities to their retirement portfolio.

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