Shorting Alcohol Related Equities
I swear I am going to make an attempt to view this from a trader’s perspective and not entirely from my own point of view as a human being going through sobriety. However, I know I will fall short in this attempt to remain neutral.
Today I am taking a look at equities related to alcohol consumption in some form or fashion. In this study I am taking a look at MGPI, NAPA, SAM, DEO, TAP, ABEV, CCU, BUD, and STZ. All of these stocks are related to alcohol in some form. My thinking about why to short them is not just because I am going through a sober period but also because, I know that I am not alone in getting sober recently.
After the pandemic lockdowns alcohol sales skyrocketed here in the US. For many people that might have been an easy expense with the plush money sloshing around the economy. Now that the funny money taps have run dry so to have easy expenses. Hopefully the pandemic lockdowns forced many people to evaluate certain aspects of their lives. I think there is also a population demographic involved with this short theory as well. With many of the baby boomers retiring and millennials coming into their mid 30’s there is bound to be a lot of people thinking alcohol has had a negative effect on their life. Rather that be through damaged relationships, expensive DUI’s, or crippling physical effects; I think many people other than me are taking up the path of sobriety. I found some “sobriety influencers” on twitter and youtube and the simple fact that these people have come into existence tells me that sobriety is catching on and now people are starting to cash in on the latest hip fad.
The first stock I am looking at is MGPI. MGP Ingredients is a manufacturer or distillation company with a plethora of branded spirits. This is likely the closest equity we can get to whiskey, vodka, and gin. Liquor the strong shit that gets you drunk fast.
My thinking is that as we head into summer time less people are going to want to hard liquor and instead drink cold beer. Out on a boat in the hot sun with a cooler full of beer (Murica!). Out on a boat in the hot sun with a handle of 80 proof, what the fuck happened to me yesterday?
MGPI has a closer correlation to the Russell 2000 than any of the other stocks I crunched numbers for in this endeavor. However, with a coefficient of determination only at 0.5766 it is certainly not all that significant. MGPI clearly has no significant correlation to SPX or the Nasdaq either. Distribution wise MGPI resembles something close to normal volatility. It is not particularly skewed either side of the center. All in all this is good for my “short theory” because I want something I can short and hold onto a bit for some number of days or weeks, and not necessarily just a short day trade. I am more likely to take a short position on something that has potential from a long term point of view.
The daily chart for MGPI actually looks like it has downside left to go on a longer time-frame. This is definitely a chart I would short without knowing what the stock was. On a shorter time frame it might be a bit over sold so a bounce back up to the $85 area would make for a better short entry than the current level.
The Fibonacci retracement area would bring the stock down to about $60 if the 0.618 area is our target to close our short. I am looking to enter with a minimal position size on Monday morning and average down should it directly go against me. If the price goes to $95 my stop loss gets hit and I take the loss because I am wrong.
Boston Beer Company Inc. (SAM). This stock covers lots of the higher end “craft type beers” such as Sam Adams, Angry Orchard, and others. Maybe you are a craft beer snob and turn your nose up at me calling Sam Adams craft beer. IDC what you think that is how I see it. My short theory is that beer sales will actually increase over the summer so this stock is not one I am particularly wanting to short.
It’s daily chart shows me that downside is relatively limited in the near term and has just been grinding sideways for nearly 2 years. Not a whole lot of short term potential there in my opinion. None the less, the correlation to IWM is more significant than either SPY or QQQ. However, none of these correlations are really significant at all. The distribution tells us it is likely log normal and the most volatile in this sector. I call this a sector, however, it is more like a collection at the moment. SAM would actually make a great candidate for a bull play but as long as it is grinding sideways I am not interested. For now, I am neither short nor long this stock but neutral.
Duckhorn Portfolio Inc. (NAPA)
This stock is mostly wine. They brand themselves as America’s fine wine standard for the past 4 decades. Personally, I think wine is a feminine drink and beyond what I personally think it is proven that drinking wine of any variety significantly decreases testosterone in men. Seeing as how most men are already having massive problems in that department I think many people would benefit from not drinking wine. However, I remain neutral about trading a stock based off of wine sales and or manufacturing.
Much like the other alcohol related stocks we have looked at thus far, NAPA is closest in correlation to IWM but not significantly correlated to any of the three big names. The distribution is interesting and rather unclear. It faintly resembles normal distribution which would equate to somewhat average volatility.
Molson Coors Beverage Company (TAP). There used to be an old beer commercial for coors light “tap the rockies.” Thinking of that makes me nostalgic for the 1990’s. Yes, this company is mostly beer, and the watered down mass produced beer that America was crazy for until the craft beer scene exploded after the 2000’s rolled in.
TAP is actually closest in correlation to QQQ, however, it is not significant at all and neither is the IWM or SPY correlation. None of them really matter here. The distribution shows us what appears to be something approximating normal distribution and therefore somewhat normal volatility. This is not one that I want to short going into summer.
This is not one that I want to short going into summer. In fact it is in a long term uptrend ever since the pandemic lows of 2020. Not one I am shorting any time soon.
Diageo Plc (DEO). This company is related to whiskey, tequila, and some other liquors. They have Johnnie Walker, Guinness, Tanqueray, Smirnoff, Crown Royal, and a few other very notable names. Definitely one I would throw into the liquor category and one that I am willing to short.
The closest correlation is IWM although much like QQQ and SPY it is not really all that significant. The distribution shows us something close to normal distribution and likely normal volatility.
The fib retracement tool suggest that DEO has already had a pretty significant pullback. Could it go lower? Sure, but between this one and MGPI I would choose to short MGPI because it appears to have more downside left than DEO.
Ambev Brewing Company (ABEV). This company is based out of Brazil and is now merged with Anheuser Busch. This company mostly produces beer for South America and it has hands in non alcohol related drinks.
ABEV is greatest in correlation to IWM though it is not significant. SPY and QQQ correlations are both completely irrelevant to ABEV. Distribution and volatility both appear to be somewhat normal. This is not one that I am likely to short in the near term.
Pulling this information straight off of Wikipedia. CCU is a Chilean producer of diversified beverages founded in 1902. The company produces both alcoholic and non-alcoholic beverages, also operating in the food sector. They have operations in Chile, Argentina, Bolivia, Colombia, Paraguay, Uruguay and Peru.
The correlation to IWM is strong but closer to a coin flip than anything. The correlation to SPY and QQQ are both insignificant. Not an stock I am interested in shorting in the near term.
Anheuser-Busch InBev SA (BUD). Makers of “Tranny Light.” Bless all that is holy I missed this short back when it was hot. Oh well, there is always another trade to take. I am still not really wanting to short this stock heading into the summer season.
The SPY and QQQ correlations are really insignificant but the correlation to IWM somewhat relative at least because it mirrors much of the rest of the sector. The distribution is looking somewhat normal suggesting normal volatility.
Last but not least we have Constellation Brands Inc (STZ) which claims to have their hands in beer, wine, and spirits. Ambitious though most of the brands I have not heard of. The correlations to IWM, SPY, and QQQ are all insignificant. The histograms suggests normal distribution and volatility.
This weekly chart for this stock has pretty much been on an elevator to the north pole for the past decade straight with no reprieve. While someone daring and with more money to blow might be willing to short this stock here, I would rather see a confirmed downtrend on the weekly or the monthly. I am not touching this stock right now.
So this about wraps up my study of alcohol related equities and stocks. Of all of these I find MGPI the best short option in the near term and I am likely to follow through with it. Long MSOS short MGPI.
Today is Saturday April 20th and I don’t have much else to say. I do still plan to do some writing about risk reward math when I can get around to it. I have been getting outside a lot as the weather has gotten warmer. It is likely as the summer doldrums come around that I spend more time outside and a bit less time focused solely on my trading. Hope all you traders have a wonderful week.