Even though investing in publicly traded companies made Warren Buffett the legend that he is, the celebrated investor hasn’t been all that enthusiastic about stocks lately. Recently, his Berkshire Hathaway investment vehicle has much preferred buying U.S. Treasury bills and maintaining a large cash pile to load up on equities when the opportunity presents itself.
So it was attention-grabbing when Berkshire plowed into liquor stock Constellation Brands (NYSE: STZ). As revealed in a recent regulatory filing, toward the end of 2024, its new position in the company comprised a 5.6 million-plus share stake worth over $1.2 billion at that point. Here’s a look at whether I think other investors should follow Buffett’s lead and buy Constellation too.
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Frothy brews
By the standards of the alcoholic beverage industry, with its dizzying number of brands and products, Constellation is a behemoth. Its specialty is beer, as it has the exclusive rights to distribute highly popular Mexican brands Corona and Modelo in the U.S. It’s been doing a particularly good job hyping the latter, as the Modelo Especial variety became the U.S.’s top-selling beer in mid-2023.
There are plenty of ways to catch a buzz on Constellation’s products. The company also has a well-stocked wine portfolio, and sells spirits like Casa Noble tequila. The pre-made, canned cocktails popular these days among drinkers are represented too, with the Fresca Mixed tequila and vodka beverages.
However, it’s the suds that provide much of the froth in Constellation’s business. In its most recently reported quarter, beer comprised more than 82% of the company’s $2.46 billion net sales. The dominant market position and the greenbacks it brings in are impressive.
That’s why it’s sobering to learn that U.S. consumers are losing their thirst for beer. Recently, Reuters quoted Bart Watson, chief economist at the Brewers Association trade group, as saying that U.S. beer consumption has been in decline for years, to the point where it reached a more than 40-year bottom in 2024. In 2023 alone, according to Association data, sales of beer in the U.S. tumbled by over 5% year over year.
Despite this trend, Constellation’s net sales of the libation rose by 3% year over year in said quarter, although this was achieved in no small part by careful price increases.
Buffett and his team usually keep mum on the reasoning behind Berkshire’s buys and sells. However, Constellation has many traits of top Buffett investments. The company possesses a strong moat in the beer business (for what that’s worth), has a straightforward business with appealing products, and is cheaply valued at a current forward price-to-earnings (P/E) ratio of only 12.
Like any investor, Buffett also likes being handed a dividend. These days, Constellation doles out a quarterly payout of $1.01 per share, which yields 2.2%. It’s almost certain to see a bump, too, as the company recently closed its 2025 fiscal year, and tends to declare a dividend raise when transitioning to a new frame.
Looking through beer goggles?
I think Constellation’s management does a fine job given what it has to work with, but neither that nor the modest valuation are enough for me personally to get excited about the stock.
The aforementioned decline of beer’s popularity — due to the younger drinking generations getting into alternatives like those ready-made cocktails, among other factors — isn’t a fluke or one-off. It looks and feels set to be a fairly long trend, and this could be exacerbated by the many large and small producers actively fighting for share in that segment.
One major problem Constellation might have to wrestle with very soon is the apparently looming, punitive tariffs on Mexico. That’s going to affect its mighty Modelo and Corona business for sure. While this is priced into the depressed stock to a degree, a potential trade war could be longer and more damaging than some anticipate.
Despite this possibility, management continues to be bullish on the future. It’s guiding for sales growth in the crucial beer segment of 4% to 7% this fiscal year over the previous one. It believes this will compensate for a decline in wine and spirits, and help produce overall net sales growth of 2% to 5%.
Constellation feels that “comparable” (non-GAAP or adjusted) earnings per share (EPS) will improve too, rising to $13.40 to $13.80. The midpoint of that range is almost 10% higher than the company’s fiscal 2024 EPS.
But there’s only so much even a powerful company can do to fight a secular decline, or endure a trade war. I think the company’s guidance might be overly optimistic, and I generally don’t find businesses that are neck-deep in weakening product segments to be attractive — even if they appear temptingly priced on a valuation or several. A dividend is nice, sure, but Constellation’s isn’t high enough to make the stock compelling on that basis.
Buffett is the ultimate long-term investor, so if the current trends turn around, Constellation could be a wise and (eventually) profitable stock pick. I wouldn’t put money on that happening, though, and I think there’s more risk than potential with this company.
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Eric Volkman 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.