DD: Why Beaten-Down Booze Stocks Could Be the Next Oil-Style Recovery Trade

Positions:

SAM — 175 shares (low 6m float, 23% short, will re-rate violently when it does)

BF.B — 1,000 shares

DEO — 325 shares

I think alcohol stocks offer some of the best deep value in the market right now.

The sector has been crushed because investors believe: (1) GLP-1 drugs will permanently reduce drinking, (2) Gen Z drinks less than previous generations & (3) COVID created too many breweries, spirits brands, canned cocktails, and too much inventory.

Here’s why those headwinds are probably short term and the market has misplaced booze stocks.

GLP-1s

GLP-1 drugs appear to reduce alcohol cravings in some users, but the bear case assumes widespread access and lifelong adherence. In reality, people stop taking medications because of cost, side effects, insurance changes, or because they miss eating and drinking normally. Also....

Coverage is also becoming more restrictive.

Medicaid enrollment has also fallen after pandemic-era coverage protections ended.

GLP-1s are a legitimate headwind, but “some users drink less” is not the same as “the alcohol industry is permanently dead.”

Younger Generations

Gen Z drinks less, but that does not mean they are vice-free or uniquely healthy. Cannabis and harder-drug use have increased among younger adults.)

Gen Z also lost some of its prime college and early-adult social years to COVID. Instead of bars, parties, concerts, and dating, many spent those years isolated, smoking weed, gaming, and socializing online. That experience will not necessarily repeat with future generations (unless another black swan pandemic happens).

Market Saturation and Inventory

COVID created a boom in craft beer, whiskey, tequila, hard seltzers, and canned cocktails. Companies expanded production as if the demand surge would last forever. It did not. Demand normalized, inventories piled up, and weaker brands started failing.

But that is how every boom-bust cycle works. Too much capital enters an industry. Supply exceeds demand. Margins collapse. Weak competitors disappear. Production is cut. Inventories clear. The survivors regain pricing power. Alcohol is already moving through that process. Smaller breweries are closing. Distributors are reducing the number of brands they carry. Companies are cutting production and focusing on their strongest products.

Every failed competitor means:

• Less supply.
• Less discounting.
• Fewer brands fighting for shelf space.
• More market share for established companies.

The major alcohol companies do not need demand to boom again. They only need inventories to normalize and the competitive field to shrink. That is similar to what happened with oil after 2020. The recovery did not require infinite demand growth. It required supply discipline, bankruptcies, reduced investment, and better capital allocation.

The Thesis

The market is pricing alcohol companies as though demand will decline forever, GLP-1 use will become universal, Gen Z behavior will never change, and excess inventory will never clear. I think that is too pessimistic. These companies still own globally recognized brands, entrenched distribution networks, limited shelf space, and products consumers have purchased for decades.

The current oversupply is painful, but it is also forcing the industry to consolidate. My bet is that alcohol demand eventually stabilizes, inventories normalize, weaker competitors disappear, and the surviving companies rerate.

The sector does not need another COVID boom. It just needs to be less bad than the market currently expects.