Absolutely did not have any expectation that these two would pop up so early in the rotation; but hey, people are entitled to their vices and I'm not so sure compulsive travel is so different - *everything* in moderation.
The consensus has the duo (and their peers) amidst a secular decline; and it's hard to argue as there is a clear health movement out there - at the margins there are many factors be they demographic cohorts to biopharmaceutical advancements, etc... also known as headwinds, perceived or actual.
One bias that has kept me away is that I'm not as sanguine on the consumer or where things are likely headed - and haven't been for some time.
My three part argument then, the setup - things are modeled and priced for the doldrums at Diageo.. While the TikTok generation has caused a shortage of Guinness (can't blame them really) people still strongly believe they don't imbibe.. /shrug
Maybe that was both the setup and the conflict, things are cheap and expectations are low - but neither is a catalyst per se.. though coupled with time I reckon they are.
As a house of brands, they don't really wow me and I'm amazed that Bacardi is still private, my point being that each shop seems to have some you'd know. Maybe the space needs more consolidation, though they do need to occasionally roll up the upstarts (i.e., it's always happening). I'm rambling.
Over at Molson Coors, you've got a different mix (Diageo is heavy spirits, Constellation wine though Modelo has changed that, Molson Coors beer, etc. right) but it's their Mexican fizzy water (Topo Chico) that's hot - how about them apples. Too many to list so here's the link:
Both likely have some tariff hangover in them (and tariffs haven't even happened yet) but I'm guessing Trump just hasn't gotten a call from his F&B manager at Mar-a-Lago yet.
People are modeling in a more shareholder friendly business (higher margins through the stack) with a flat topline .. Multiples are very much taking a punt.
But hey, while they've got major beer exposure, they aren't the dumpster fire that has been Anheuser Busch - Inbev! Which six months ago probably would have been my choice for a quick looksie.
Who knows, maybe gen z and their rampant crypto speculation will lead to a perfect mirror of the first roaring '20s and it really is all champagne and caviar.. or not. Who's going to write this generations The Great Gatsby or will it just be some TikTok account with 10mm followers?
If the craft brew cycle has peaked, what does a normalization look like? If the consumer is tapped out, how do their spending patterns shift? How do generational differences impact trends and are those new trends ultimately mean reverting?
Crux of the matter, they seem reasonably cheap - how does this translate into shareholder value and returns? My hunch is time, patience, and that business as usual might just work - but management teams can get antsy and do silly things, so there's some work to do there.
Look, they're cheap, I'm looking at them from geo stationary orbit (35,786 km) - a lot more work is needed to gain any confidence, but they are 100% 'invest and investigate' candidates in the new year.
br. -john
p.s. coming in i had them at 50-50 but tbf i had already seen the numbers, otherwise it would have been maybe 80-20
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