Stan Wong Constellation Brands Inc STZ-N TOP PICK Jun 06, 2024

It rallied 3% today, perhaps by a market sensing that Harris will win the election. STZ sells many beers that are popular with Latinos, and immigration will be more liberal under Harris. STZ's beers are made in Mexico, so it could be hit by a Trump tariff. 

It's been up and down and down. It faces headwinds from the weight-loss drugs reduing consumption of alcohol, potential tariffs on Mexican goods (Modelo is a major brand of theirs), and Latinos, a key consumer, could be deported under Trump. But STZ spews cash and is growing, leading to Trump exempting STZ from tariffs. He just added more shares. He wants STZ to talk about this big brewery they're building in Mexico. He hopes they launch a huge share buyback. This is tricky.

Today they reported weak numbers, missing on almost every line and cut their full-year sales forecast.

Yesterday, LVMH reported a 36% decline in wine and spirits. That is shocking for the entire alcohol sector, and LVMH is the best performer. STZ is -27% in the past year. No alcohol stock is willing to admit to an existential threat, but rather than drinking is normalizing after Covid. He disagrees. Cannabis is cheaper than alcohol, there's a new advisory that links alcohol to increased risk of cancer, younger people are drinking less, and the weight-loss drugs are limited alcohol cravings. What could turn this around is offering something new, like new drinks and better prices (stop increasing prices). 

Down 19% last month, but was already under pressure after the election and a bad quarter. The CEO lacks urgency is fixing the company's problems. Seems to be in denial. With the new Mexico tariffs, he sold half his position today.

Big selloff in January, with a lower low in February. Now trying to establish a higher low in March. If it can hold $175, this is a reverse head and shoulders pattern. Looks like a pretty strong technical base forming; for confirmation, need it to break out ~$185-190 to complete the base. If it does, really interesting. RSI still fairly weak.

They report Wednesday. They can't be sure of the impact of tariffs on their products like Mexican beer. They already are challenged by the weight-loss drugs and the health trend. He suspects the immigration crackdown has hurt, because some of their customers are Hispanic.

He sold on a negative technical formation, when shares started trading below a falling 200-day MA. Growth is weak, only 2-3%. Beer segment is really decelerating, as are wine/spirits. Premium names could suffer if consumers trade down in a weak economy. 35% acquisition of Canopy Growth may also be an overhang.

Looking at the chart, Feb/Mar was the first bottom around $161, which is where we are right now. Stock's had a very steep decline from $195 to $161 -- very concerning. Volume's coming in with buyers, but not to the extent of sellers in the January drop. It's up today, which is positive.

If you're buying, be very careful. Small position only. Absolutely no support at current level. Everybody's losing money on it, so there's no patience.

Hurt by the weight-loss drugs, younger people drinking less while their Mexican brands suffer from Trump's immigration crackdown.