Contrarian traders should watch SAM as it tests a key support level on the charts
"America's Long Love Affair With Beer Is on the Rocks," announced a Wednesday, Aug. 1, front-page headline on The Wall Street Journal. The article highlights what appears to be a secular shift away from domestic beer guzzling and toward the more judicious sipping of wine and cocktails. The same day, a separate Journal article highlighted a new joint venture by Molson Coors Brewing (TAP) "to develop non-alcoholic, cannabis infused beverages for the Canadian market."
On July 18, just a couple of weeks prior to this gloomy feature on the U.S. beer market, the widely hyped Tilray (TLRY) initial public offering (IPO) dominated market headlines as the Canada-based firm became the first cultivator of cannabis to drum up capital through a Nasdaq listing. The IPO priced at $17 per share, and rallied as high as $24 in its inaugural U.S. session. By its third day of trading, TLRY peaked intraday at $34.10 -- more than double its IPO price.
Those who have been long-time followers of our contrarian approach to investing may already know our "baseline" stance on front-page financial media coverage -- specifically, that there's a good chance the trend being discussed is already widely known among investors, and has very likely been priced into the affected shares by press time.
Take the Tilray giddiness, for example; the stock has already shed 29% from the aforementioned "double IPO" peak attained just a couple of weeks ago. The juxtaposition of this rapid decline in TLRY with fresh bearish WSJ coverage on beer doesn't necessarily lead us to a knee-jerk "long domestic beer producers/short pot stocks" here (TLRY, for what it's worth, appears to have found support around its IPO-day close of $22.93), but it does give us cause to investigate the outlook for some of these "vice stocks" with a more critical eye. And in so doing, a few under-the-radar "super round numbers" reared their heads.
Constellation Brands (STZ) -- which pads its beer offerings (Corona, Modelo) with spirits (Svedka, Casa Noble) and a fairly deep bench of wine brands (Clos du Bois, Robert Mondavi) -- might be an expected beneficiary of the shift toward wine and cocktails over beer. And the accompanying chart does show Constellation stock has been accelerating away from beer-heavy brands like TAP and Boston Beer Company (SAM) for several years now. STZ also just met up with its 320-day moving average, which the stock previously chopped around for about four months in late 2016 and early 2017 before "going vertical" through the end of last year.
Note, however, that the relative slowdown in STZ's momentum that began around the start of 2018 coincided with the shares beginning to test one of those "hidden" round numbers that can be so easy to overlook in technical analysis -- namely, a 1,000% 10-year return. As of this writing, that corresponds to a price of $238.15 for STZ, which lies just north of the stock's April 30 all-time high of $236.62. That said, at Friday's close of $214.02, the stock has room to rally more than 11% before testing this area.
Then there's SAM, which boasts among its portfolio of "alternative" beverages the Truly Spiked & Sparkling brand (which would appear to fit into the category of cocktails that one subject in WSJ's beer eulogy described, with no apparent sense of irony, as a "healthier" alternative to traditional brews). The Samuel Adams parent gapped down hard in late July on an earnings miss, but appears to have found a floor in the form of its 80-day moving average -- and the post-event low also occurred just above a 500% 10-year return. If SAM can extend the bounce from this emerging support, a possible short-covering rally would take more than 14 days to fully play out.
Finally, we have TAP, the purveyor of such iconic "old school" suds as Miller Genuine Draft, Milwaukee's Best, and (of course) Coors Light. The stock's performance has diverged sharply from that of STZ in recent years, with TAP falling and STZ rising in an effective visual summary of the trend described in the WSJ article. Looking back further, TAP's return over the last decade totals less than half that of the SPDR S&P 500 ETF (SPY). But with short interest at a low 2.6% of float, 53% "buy" ratings from analysts (and zero "sells"), plus stiff resistance coming into play at the stock's April pre-bear gap lows around $70-$71, there's simply no contrarian bullish argument to be made right now for this particular vice stock.
Subscribers to Bernie Schaeffer's Chart of the Week received this commentary on Sunday, August 5.