It's Time To Buy Corona

The stock market can be a funny place and inefficient things happen all the time despite the levels of liquidity present in 21st-century markets. As the world shut down in March and hundreds of millions of people shifted to working from home, shares of the video conference app, Zoom Video Communications (NASDAQ: ZM) popped more than 130% in just a few weeks. Nothing too crazy or inefficient there, but consider Zoom Technologies (OTC: ZOOM), a ten-person shell company with headquarters in China. Their shares jumped almost 3,000% in Q1 simply because the market got their ticker confused when they were trying to buy shares of the video app.

For Constellation Brands (NYSE: STZ), one of the world’s largest producers of wine, beer, and spirits, investors might have felt that a similar inefficiency happened. They’re the parent of the popular Corona Beer and with the advent of the current pandemic, known as coronavirus, their shares happened to be hit harder than most in the recent sell-off. Could it be due to one of their most popular brands sharing a name with the deadliest pandemic of the century?

Performance Against Peers

When equities started to turn in mid-February as the spread of virus ramped up, Constellation’s stock was already turning downwards. By the middle of March, it had fallen more than its closest competitors. Shares of Boston Beer Company (NYSE: SAM) were down 20%, Molson Coors (NYSE: TAP) was down 30%, Ambev (NYSE: ABEV) was down 40% and Constellation was down almost 50%. Sure, the whole ‘shelter in place’ and economic uncertainty played its part in taking these names down, but the makers of Corona beer certainly bore the brunt of the coronavirus sell-off. This is strange because coming into the start of February, Constellation and Boston Beer Company were leading that pack from the front up 20% and 30% in the previous year respectively while the others languished down about 10%.

But with equity markets continuing to stage a remarkable comeback rally from what was the worst Q1 in history, investors are starting to run back into Constellation stock. At the height of yesterday’s session, it was already up 55% off its lows and with fresh analyst upgrades to the stock hitting the headlines, it looks like investors have a serious bargain on their hands.

Analyst Upgrades

On Tuesday, UBS sized up the long term opportunity on hand and felt it outweighed the near-term risks. They issued an upgrade and gave Constellation stock a price target of $180, saying at the same time "we see STZ as well-positioned through the on-premise slowdown due to limited exposure, and recognized brands to weather a period where consumers buy what they know. After restrictions are lifted, we do however expect a more lasting behavioral shift to favor outdoor social gatherings over bar/resto traffic, which favors the STZ Brands".

They weren’t the first either. In late March with shares barely off the lows, SunTrust took the bullish step in raising them to a Buy from a Hold and gave them a meaty $200 price target. This amounted to effectively a 60% premium on where shares were trading at the time. Their argument was that with the initial sting of the selloff receding, now was the time to bunker down with recession-proof stocks. And with beer and liquor being some of the last things people will give up in a recession, Constellation’s much beaten up stock offered a very attractive entry point.

On top of all this bullish momentum, the company itself struck a similar tone with investors, telling them that increased demand for their products in liquor stores was ‘more than making up for the drop in demand in bars, restaurants and clubs. This was with the release of their Q4 earnings which came in on top of analyst expectations.

It might be a while yet before investors can order a cold Corona at a bar with a fresh slice of lime, but at these levels, they should certainly consider adding it to their portfolio now.