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Constellation Getting High

Dear Mr. Berko: This year, I plan to put $6,500 in my individual retirement account into the American Funds Global Balanced Fund, which my stockbroker says will outperform the stock market in the coming decade. I am 60 and intend to work till I’m 70. What is your opinion of American Funds?

Also, a friend working for Constellation Brands suggested I buy stock in his company because it’s going to be big in the cannabis business. He says it’s public knowledge. I’d appreciate your thoughts. — LD, Moline, Ill.

Dear LD: Of course the broker wants to sell a mutual fund. The American Funds Global Balanced Fund (GBLAX) pays your broker a 5.75 percent sales fee, but that fund’s poor record is an embarrassment. Go to Charles Schwab and buy 30 shares of Constellation Brands.

Marijuana is surreptitiously everywhere but difficult to get in most states unless you’re intimate with the dark alleys, motorcycle bars and seamy edges of your city. Constellation Brands (STZ-$221) is an $8 billion producer and marketer of beers, wines and the harder stuff. If you’ve gotten a buzz from a Corona, a Modelo, a Robert Mondavi, a Woodbridge, a Taylor, a Paul Mason, a Ruffino or a Manischewitz, you’re an STZ customer. Black Velvet, Wild Irish Rose, McMasters, Svedka and Casa Noble are also popular STZ drunk kits. STZ markets a passel of outstanding craft beers — plus an intriguing range of craft whiskeys produced by High West, a recent STZ acquisition. Because these labels provide a high-end buzz, they augur top- and bottom-line growth. Some 93 percent of sales derive from the U.S., while Canada, New Zealand and Europe claim the remaining 7 percent. STZ has been on a buying spree for the past few years, recently acquiring Funky Buddha, a craft brewer that’s among the fastest-growing labels in Florida. While beer is STZ’s most significant growth product, management’s diversification is aimed at growing the company’s long-term revenue and earnings. Read on. As your friend said, the best is yet to come.

Constellation is chasing a new buzz and recently took a 9.9 percent stake in Canopy Growth (11L1-$8.51), with an option to acquire another 9.9 percent. Canopy Growth is a Canadian company that’s the world’s largest cannabis grower. It’s listed on the Toronto Stock Exchange with a $1.7 billion valuation. This $191 million acquisition gives STZ a good grip in an industry that many believe will be fully legalized by the U.S. in a couple of years. Canopy and STZ intend to develop and market cannabis-infused beverages. And given what’s happening at the state level, Canopy may soon be marketing drinkable cannabis without alcohol, such as laced sodas, coffees and other elixirs. STZ’s management has no plans to sell cannabis products in the U.S. until pot is legalized nationwide. However, STZ plans to retail these products in Canada, where edible and drinkable cannabis products are expected to be legalized by the end of the year. Cannabis is a multibillion-dollar market that can produce multibillion-dollar profits. And I suspect that most of STZ’s corporate board and management, as far down as midlevel executives, are sampling product in the interest of research.

When the stock market melted in 2007, Constellation’s share price imploded to $11. Earnings were an uninteresting $1.44 a share, and revenues were $3.7 billion, while the dividend was a miserly $1.24. This year, management expects to report share earnings of $8.40 on revenues of $7.8 billion, and the board, after sampling some product, decided to pay a $2.08 dividend. During the same time frame, net profit margins have improved fourfold, to 22.6 percent. Cash flow has grown fivefold, and return on capital has grown nearly threefold. By 2022, share earnings could exceed $12.25. Revenues could come in at $10.5 billion, and it’s possible that the dividend will be $2.55. And none of those numbers includes anticipated sales from marijuana products. I believe that by 2024, cannabis products could account for 30 percent of STZ’s revenues and 60 percent of its profits, and I think the dividend could be $3.25. However, before those numbers have a chance to prove themselves, I suspect that Amazon will buy STZ’s business, allowing for the possibility that high-flying drones will deliver the product to your doorstep.

Zacks, Standard & Poor’s, Market Edge, Bank of America, Thomson Reuters, Argus Research, J.P. Morgan and Citigroup are recommending the stock. I am, too.

Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at mjberko@yahoo.com. To find out more about Malcolm Berko and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.

 

COPYRIGHT 2018 CREATORS.COM

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BIOGRAPHY

Drew Limsky joined Lifestyle Media Group in August 2020 as Editor-in-Chief of South Florida Business & Wealth. His first issue of SFBW, October 2020, heralded a reimagined structure, with new content categories and a slew of fresh visual themes. “As sort of a cross between Forbes and Robb Report, with a dash of GQ and Vogue,” Limsky says, “SFBW reflects South Florida’s increasingly sophisticated and dynamic business and cultural landscape.”

Limsky, an avid traveler, swimmer and film buff who holds a law degree and Ph.D. from New York University, likes to say, “I’m a doctor, but I can’t operate—except on your brand.” He wrote his dissertation on the nonfiction work of Joan Didion. Prior to that, Limsky received his B.A. in English, summa cum laude, from Emory University and earned his M.A. in literature at American University in connection with a Masters Scholar Award fellowship.

Limsky came to SFBW at the apex of a storied career in journalism and publishing that includes six previous lead editorial roles, including for some of the world’s best-known brands. He served as global editor-in-chief of Lexus magazine, founding editor-in-chief of custom lifestyle magazines for Cadillac and Holland America Line, and was the founding editor-in-chief of Modern Luxury Interiors South Florida. He also was the executive editor for B2B magazines for Acura and Honda Financial Services, and he served as travel editor for Conde Nast. Magazines under Limsky’s editorship have garnered more than 75 industry awards.

He has also written for many of the country’s top newspapers and magazines, including The New York Times, Washington Post, Los Angeles Times, Miami Herald, Boston Globe, USA Today, Worth, Robb Report, Afar, Time Out New York, National Geographic Traveler, Men’s Journal, Ritz-Carlton, Elite Traveler, Florida Design, Metropolis and Architectural Digest Mexico. His other clients have included Four Seasons, Acqualina Resort & Residences, Yahoo!, American Airlines, Wynn, Douglas Elliman and Corcoran. As an adjunct assistant professor, Limsky has taught journalism, film and creative writing at the City University of New York, Pace University, American University and other colleges.