This Ridiculously Cheap Warren Buffett Stock Could Make You Richer
Key Points
Constellation Brands is falling because of fears over alcohol consumption declines in the United States.
The company has been gaining share in the United States with its Mexican beer brands.
The stock trades at one of its cheapest valuations ever, making it a potential buy for contrarian investors.
Everyone is focused on artificial intelligence (AI) right now and the potential disruption to various economic sectors. What is being less focused on is the potential disruption hitting the alcohol and food industries due to changing societal behaviors and weight loss drugs.
One stock hit by these factors is Constellation Brands (NYSE: STZ). Shares of the distributor of various Mexican beer brands in the United States, which is also owned by Berkshire Hathaway, are down 42% from its highs as alcohol usage trends reversed over the last couple of years.
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The stock now trades at one of the lowest earnings multiples in the company's history. Here's why contrarian investors may want to look at Constellation Brands and why it might make investors rich who buy today and hold for the long haul.
Leading market share gains in the United States
Owning the distribution rights for Modelo, Corona, and Pacifico beers in the United States, Constellation Brands has seen steady market share gains since acquiring the brands in 2013, with Modelo now the top-selling beer brand in the country, dethroning Bud Light.
Revenue grew from $3 billion to just about $10 billion at the peak in 2024, making it the fastest-growing large brewer in the country. Now, revenue has fallen to $9.4 billion over the last 12 months, with beer shipments down 2.2% year over year last quarter and net sales and operating income down 1%.
Why? Well, for one, Constellation Brands has sold some of its wine assets, which no longer appear on its financial statements. Second is the fact that alcohol consumption has started to decline in the United States, especially with younger generations. The percentage of the U.S. population who drink has fallen to 54%, its lowest level in recorded history. It has historically run around 60% since the end of prohibition, when Gallup began running surveys.
Image source: Getty Images.
Why Constellation Brands' stock could make you richer
While consumption declines are nothing to scoff at, it is hard to argue that beer drinking is going away tomorrow. Humans have been drinking beer for millennia, with a long-term understanding (if not always scientific) that it is not healthy for you. Weight loss drugs may impact people's beer consumption, but it feels highly unlikely that beer drinking is going away entirely.
Contrarian investors should take this long view and see the cheapness in Constellation Brands stock. Shares trade at just 11.6 times trailing operating earnings, with the company paying a 2.56% dividend yield and remaining a heavy repurchaser of its own stock.
Through continued market share gains for Mexican beers in the United States, pricing power, and eventual stabilization of alcohol consumption, Constellation Brands' earnings can keep climbing over the next few years. At a cheap earnings multiple, this makes the stock one that could make you richer by buying today and holding for the long haul.
Brett Schafer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool recommends Constellation Brands. The Motley Fool has a disclosure policy.