COVID-19 restrictions have shuttered many restaurants and bars, but consumers are finding their ways back to those establishments that have survived. That may be a good thing for stocks of companies that make and sell drinks.
While sales of alcohol and some soft drinks for home consumption may tail off once people return to their pre-COVID routines, Ben Shuleva, manager of Fidelity® Select Consumer Staples Portfolio (FDFAX) says that overall beverage sales could rise as COVID-19 vaccines become widely available.
He points out that beverage companies earn more on a per-unit basis from hard and soft beverages sold at restaurants, bars, and ballparks than from beverages purchased at stores and he thinks sales at the former could eventually rise significantly.
“Lots of people are itching to get out and gather with friends, which I think could fuel sales of many types of beverages later in the year,” Shuleva says.
In reviewing investment opportunities among alcoholic beverage firms, Shuleva has focused on brands that could benefit from on-premise sales of single-glass servings.
These include UK-based global distiller Diageo (DEO), a major producer of Scotch whiskey. Shuleva believes the company could thrive in the early phase of the economic cycle, with the added benefit of its stock being a lot cheaper than other luxury-related names.
For a similar reason, he established a small stake in Pernod-Ricard (PDRDY), the French producer of aperitifs, early in 2021.
Among soft drinks, Shuleva thinks companies hit hard by the pandemic could see bigger profits on a slight increase in sales, due to cost cuts in 2020. These include Coca-Cola (KO), which is restructuring, PepsiCo (PEP), Monster Beverage (MNST), and Keurig Dr. Pepper (KDP).
“I think several beverage firms could sell a surprising amount of product this year, as long as COVID-19 vaccine distribution stays on track,” Shuleva says.
Fidelity® Select Consumer Staples Portfolio held securities mentioned in this article as of its most recent holdings disclosure. For specific fund information, including holdings, please click on the fund trading symbol above.