We recently published a list of Beer loses its fizz while spirits gain popularity: Top 10 stocks to buy. In this article, we take a look at how The Duckhorn Portfolio, Inc. (NYSE:NAPA) compares to other spirits stocks.
As we approach the end of 2024, the alcoholic beverage industry is also changing. Data from the Distilled Spirits Council (DSC) shows that spirits continue to gain ground on beer, which is traditionally the alcoholic beverage of choice. In 2023, spirits held more than 42% of the total market, an increase of 13 percentage points since 2000. These changes come at a time when Americans’ attitudes toward alcohol are changing significantly. For example, in a very detailed survey conducted by Gallup, participants were asked a variety of questions about their drinking habits and their perception of the role of alcohol in society.
Compared to participants surveyed in 2001, when 22% of participants considered alcohol beneficial to health, in 2023 this figure dropped by more than half, reaching 10%, the lowest level in two decades. Likewise, DSC data confirmed that 47% of participants had most frequently drunk beer in 1992, but not only did this percentage drop to 37% in 2023, but the figures for wine and spirits increased from 27% and 21% to 29% and 31% respectively.
In 1987, 29% did not drink alcohol in the past week, compared to 33% in 2023. Other research also shows that between 2001 and 2023, 72% of 18-34 year olds reported having had a drink in the past year, while this figure fell to 62% in 2024. This suggests that the trend towards lower alcohol consumption is mainly driven by young people, as percentages increased among both 35-54 year olds and those over 55.
Building on that, while declining alcohol consumption may intuitively sound bad for the spirits industry as it contributes to lower sales, the reality might be a little different. This is because lower intensity of alcohol consumption leads to better health outcomes and more long-term sales for the alcohol companies. In addition, as demand for spirits increases, younger drinkers are more likely to focus on sweeter drinks like tequila or its close cousin mezcal. This is because sales of America’s most popular spirit, vodka, stagnated in 2023, while tequila/mezcal sales grew 7.9% annually to $6.5 billion, approaching vodka’s dominant market position of $7.2 billion.
In addition, Americans continue to value convenience, as the fastest-growing spirits category is premixed cocktails, or ready-to-drink alcohol. Although the category’s market share is relatively small at $2.8 billion, it grew 26.8% annually and was the only spirit with a double-digit percentage market share increase.
While it’s possible that the decline in alcohol consumption is due to a health-conscious population (39% believed alcohol was harmful to health in 2023, up from 27% in 2001), it’s also possible that other recreational products like cannabis and psychedelics are taking over. For cannabis, 2024 has proven to be a pivotal year, as increasing legalization and decriminalization will allow more consumers to try it. In this regard, data collected by the Substance Abuse and Mental Health Services Administration (SAMHSA) provides insight. SAMSA’s 2019 National Survey on Drug Use and Health found that 50.8%, or 139.7 million people, reported drinking alcohol. The same survey for 2022 found that number dropped to 48.7%, or 137.4 million people. Crucially, in 2019, 54.3% or 18.3 million people aged 18 to 25 had drunk alcohol in the last month, while in 2022 this figure was 50.2% or 17.5 million.
So it is clear that alcohol consumption has decreased between 2019 and 2022. Marijuana use, on the other hand, is increasing. In 2019, 35.4% of the same age group were marijuana users, which was significantly higher than the 29.8% in 2002. In total, 17.5% or 48.2 million people used marijuana last year, 2019, up from 11% in 2002. In 2022, that number had risen to 61.9 million people. Another important study that directly analyzes whether marijuana is gaining popularity over alcohol comes from the Addiction Journal. It analyzes SAMHSA data between 1992 and 2022 and reports a 15-fold increase in cannabis use per capita.
In terms of numbers, 17.7 million people reported using cannabis daily or almost daily in 2022, three million more than the 14.7 million who consumed alcohol. The intensity of cannabis use was also higher: the average cannabis user reported using cannabis for 15 to 16 days in the past month, while the average drinker drank for 5 to 6 days.
To summarize, alcohol consumption is currently declining, younger drinkers are preferring sweeter drinks and spirits over vodka and beer, and cannabis use is on the rise. With these details in mind, let’s look at the ten best alcoholic beverage stocks to buy.
Our methodology
To create our list of the top 10 alcohol stocks to buy, we ranked the 40 most valuable alcoholic beverage companies traded on the NYSE and NASDAQ by the number of hedge funds that purchased the stocks in the first quarter of 2024. From this, we selected the stocks with the highest number of hedge fund users.
Why do we care about the stocks hedge funds invest in? The reason is simple: Our research has shown that we can outperform the market by mimicking the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks each quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (Further details can be found here).
A picturesque vineyard in North America with stored wine barrels.
The Duckhorn Portfolio, Inc. (NYSE:NAPA)
Number of hedge fund investors in Q1 2024: 14
The Duckhorn Portfolio, Inc. (NYSE:NAPA) is a wine company headquartered in Saint Helena, California. It is one of the largest luxury wine brands in America, selling classic Chardonnay, Merlot, and other wines. The Duckhorn Portfolio, Inc. (NYSE:NAPA) operates in a highly fragmented industry where there are countless players. This means the company must constantly stay on top of its game and invest heavily in marketing to ensure it not only gains market share but also maintains it. Additionally, because The Duckhorn Portfolio, Inc. (NYSE:NAPA) only sells wine, and high-quality wine at that, the company is more vulnerable to inflationary trends than other alcohol stocks. So it’s not surprising that the stock is down 34% year to date, and The Duckhorn Portfolio, Inc. (NYSE:NAPA) is also investing in revamping its distribution network by focusing on wholesalers. While this enables the company to sell significant quantities of product, there is also a risk of significant channel flooding in the event of a decline in demand.
Merion Road Capital briefly commented on The Duckhorn Portfolio, Inc. (NYSE:NAPA) in its second quarter 2024 investor letter, stating:
“During the quarter, I sold our position in Duckhorn (“NAPA”) at a loss. The fundamentals were worse than expected and I ultimately realized that the upside potential, being lower than my prior expectations, did not justify the current uncertainty.”
NAPA total takes 8th place on our list of the best spirits stocks to buy. While we recognize NAPA’s potential as an investment, we believe some AI stocks promise higher returns and do so in a shorter time frame. If you’re looking for an AI stock that’s more promising than NAPA but trades at less than 5 times earnings, read our report on the cheapest AI stock.
READ MORE: Analyst sees new $25 billion ‘opportunity’ for NVIDIA and the 10 best stocks to buy for Q3 2024, according to Bank of America.
Disclosure: None. This article was originally published on Insider Monkey.
