Wells Fargo analysts are bullish on these 3 beverage companies, but traders say this 1 stock in the bunch looks set to outperform. Here’s why.
Tis the season for a toasty beverage enjoyed next to a warm and cozy fire.
Wells Fargo analysts were in the holiday spirits this week, delivering a research note on six beverage brands this week.
The firm’s analysts initiated overweight ratings on Coca-Cola (NYSE: KO), Constellation Brands (NYSE: STZ), and Monster (NASDAQ: MNST) this week on promising growth prospects, and equal weight ratings for Keurig Dr. Pepper (NASDAQ: KDP), Molson Coors (NYSE: TAP), and PepsiCo (NASDAQ: PEP).
But of these six names, traders say there’s one in the bunch that looks poised for more upside ahead.
“We like Constellation,” said Todd Gordon, founder of TradingAnalysis.com. “The dividend is at about 1.4%, it’s only trading at 20.5 times next year’s earnings, 37 trailing [price-earnings]. It’s not overly valued.”
Looking at the stock’s chart, Gordon points out that Constellation shares have broken above trend line resistance at $195. And if it can hold above that level? Gordon would be a buyer.
Constellation Brands shares closed at $207.29 on Thursday.
Strategic Wealth Partners’ Mark Tepper also likes Constellation Brands, and believes its Mexico-imported beers and higher-end wines are a strength.
Tepper also argues the company offers investors exposure to one particular high-growth segment.
“With Constellation Brands, let’s not forget you also get the call option on the cannabis business with Canopy Growth (NASDAQ: CGC),” Tepper said. “And that’s an industry that is just looking better and better every single day. I mean, all those stocks are going up.”
Constellation Brands holds a 38% stake in Canopy Growth, one of the largest cannabis producers, which is expected to see sales increase 48% in fiscal 2021.
Canopy Growth is moving to bring cannabis beverages to the U.S. next year, with Constellation Brands’ help. The drinks will contain THC, the psychoactive compound found in marijuana, in dosage amounts that are designed to keep drinkers buzzed and social in a similar way to beer, cocktails or wine.
“Just as hard seltzer disrupted beer by providing a lighter, low-calorie alternative, we believe cannabis beverages will be an attractive option for what have traditionally been alcohol-driven occasions and mood states,” said Canopy CEO David Klein.
Constellation Brands will lend Canopy its expertise and distribution network for the cannabis drinks, while Acreage Holdings (OTC: ACRHF)—which has an agreement to merge with Canopy when federal legalization for pot occurs in the U.S.—has already begun the manufacturing operations.