Investing in Wine Stocks

For thousands of years, wine was often held in reserve for the social elite, an expensive luxury item inaccessible to the masses. Today, wine is enjoyed by hundreds of millions of consumers around the globe and is quite accessible -- as both a beverage and an investment. It isn't the highest growth industry anymore (like it was in the 1970s, when California's wine industry was upsetting long-held beliefs on where good wine can come from), but investors have a number of wine stocks that can be paired with the rest of their portfolio.

Wine is worth tens of billions of dollars in spending every year, and some estimates point toward average annual growth in the mid-single-digit percentages in the next decade. Even so, investing in wine stocks can be a good option for investors looking for more stable returns and some dividend income.

Investing in wine stocks

Like other alcoholic beverage industries such as beer stocks and distilled spirits stocks, wine isn't just a slower and steadier growth sector of the economy. There also aren't a lot of pure-play options for investors hoping to bet solely on products of the vine. Some compelling options do exist, although most of them come with a portfolio of beer or alcohol brands to complement wine labels.

Here are six wine stocks to watch for 2022, what they contribute to the winemaking business, and how to decide if they're right for you.

Data source: YCharts. Market cap data as of April 15, 2022.  

1. LVMH Moët Hennessy Louis Vuitton

The sprawling luxury goods portfolio of France's LVMH Moët Hennessy Louis Vuitton has produced one of the world's richest people: CEO Bernard Arnault. Champagne and other ultra-high-end spirits feature prominently in this diverse portfolio of high fashion. The company's name indicates as much since champagne house Moët & Chandon is a premier beverage of the rich and famous, as well as a highly sought-after label for special occasions. Other premium champagne brands include Dom Pérignon, Krug, and Veuve Clicquot.

LVMH's champagne and distilled goods segment reported a 15% decline in sales during the COVID-19 pandemic in 2020. But champagne is bubbling back to life as the global economy finds its footing once again. Champagne represents less than 20% of LVMH's total business. Even so, the luxury conglomerate overall is a long-term growth stock, and its collection of high-end products is in consistently high demand. In emerging markets such as China, ultra-high-end goods are growing at a rapid pace. Shares also pay a small dividend. For investors looking for steady growth from the epitome of grape-based alcoholic beverage luxury, look no further than LVMH Moët Hennessy Louis Vuitton.

2. Constellation Brands

Constellation Brands is best known for a Mexican beer portfolio that includes Corona, Modelo, and Pacifico. It also has several wine labels (Kim Crawford, Robert Mondavi, and more) and a 40% stake in marijuana business Canopy Growth (NASDAQ:CGC), making this stock a broader-based play on the beverage industry.  

Until 2021, Constellation was a fast-growing company, thanks to its beer business, which makes up some three-quarters of total revenue. Its portfolio of alcoholic beverages has matured, though, and this is likely to be more of a slow-and-steady business going forward. The one-quarter of revenue brought in by wine (as well as spirits) is also expected to be a stable business. Constellation has proven to be a good investor in various alcohol businesses and has expanded the reach of its portfolio over the years. The company has stoked operating profit margins of well over 30% the past couple of years from its cellar of wines and other adult drinks. It also pays a modest dividend, making this a similar growth and income play to LVMH.  

3. SVB Financial Group

SVB Financial Group (also known as Silicon Valley Bank) may seem out of place here. After all, this is a bank that got its start in the heart of the world's tech industry in California. It bills itself as a banker of the "innovation economy." But just up the road from Silicon Valley are Napa Valley and Sonoma Valley, prolific wine country that churns out top aged grape juice products. Silicon Valley Bank is a top banker to premium wineries and would-be winery upstarts.  

Given that SVB Financial operates in areas of innovation around the globe, wine is a good fit. As consumers tend to accrue wealth when their country's economies advance and grow more complex, wine consumption tends to rise as well. Silicon Valley Bank might be an ancillary play on the wine industry, but its expertise in this realm shouldn't be ignored. This is a top growth story in the banking world, catering to premium vineyards and wineries.  

4. Treasury Wine Estates

This next pick jumps the Pacific and crosses the equator to Australia, one of the world's top wine producers. Treasury Wine Estates is one of the largest players in the country (Accolade Wines is another top business in Australia, but it is now owned by private equity firm Carlyle Group (NASDAQ:CG). Treasury Wine Estates owns labels that include Penfolds, 19 Crimes, Stag's Leap, and Beaulieu Vineyard.

Treasury Wine Estates is a rare pure-play stock on wine, but shares have struggled to gain positive traction in recent years -- especially since the pandemic as sales and profits have yet to fully rebound. As one of the largest players in the business, though, it pays a decent dividend and could be worth a look if you're wanting investment income.

5. The Duckhorn Portfolio

Back to Napa Valley, California: The Duckhorn Portfolio, a recent IPO stock, is a top bet on the region's winemaking prowess, as well as wine regions in Washington and Oregon. It includes the labels Duckhorn, Decoy, and Canvasback.  

The Duckhorn Portfolio doesn't have a long history as a public company, but it's certainly off to a good start. Sales have notched a strong rebound from 2020 when wine consumption fell during the start of the pandemic. Its most recent results showed sales were increasing by a percentage in the high teens. Before that, the company had a history of outpacing average industry growth via good brand management and strategic investment in new winemakers. It has ample debt on its balance sheet, but it also generates plenty of profits. If a potential high-growth wine story is your bag, The Duckhorn Portfolio is worth a look.

6. Vintage Wine Estates

Vintage Wine Estates is another recent IPO. It went public in 2021 via a SPAC merger. Wine in the portfolio comes from all over the West Coast of the U.S. and includes brands such as Girard Winery, Clos Pegase, and Swanson Vineyards. Other alcohol brands include Ace Cider and No. 209 Gin.  

The company's strategy revolves around an "omnichannel" experience, one that encompasses traditional wine distribution as well as a large online direct-to-consumer segment that delivers wine to consumers' doors. Vintage Wine Estates is growing at a double-digit percentage, but it also has ample debt to offset its cash on balance. Nevertheless, if a fast-growing pure-play stock on the wine industry is what you're looking for, this company has a unique take on winemaking and selling.

Investing in a luxury beverage for all

Wine stocks aren't for everyone. Much like other food and beverage stocks, wine isn't the fastest-growing industry out there. But, as the global middle class expands, wine may offer some gradual growth in the years ahead, and a few wine holding companies dole out dividends as well. Just remember to tread carefully and diversify any wine shares you might buy with other alcohol, beverage, and food stocks.