Research has since failed to prove alcohol's health benefits, and health officials are growing more vocal about its risks. A January advisory report from the Surgeon General called alcohol consumption a leading preventable cause of cancer. It recommended new warning labels on packages and a revisiting of government guidelines -- currently set at no more than two drinks a day for men and one for women. In response, investment bank Alliance Global Partners published a chart of U.S. per capita cigarette consumption peaking around when the Surgeon General first warned of tobacco's cancer risks in 1964, and then plunging over decades through advertising bans, tobacco tax hikes, and lawsuits.

There are key differences with alcohol. It's much more fragmented than tobacco in production and distribution, with far more jobs. "So, it's going to be hard for Congress to go and change the label on something that's such a big part of their local community," says Roth Capital Partners analyst Bill Kirk.

In spirits, Kirk says the best bargains aren't for investors: "This is a wonderful time to be a whiskey consumer because you're going to find deals." His Buy ratings skew toward beer, which he views as a better fit for the moderation movement, and where he thinks companies will be able to offset volume declines with price increases. His top pick is Constellation, followed by Boston Beer.

Back when Anheuser bought Mexico's Grupo Modelo in 2012, it had to sell Modelo's U.S. distribution to satisfy regulators, and Constellation, a wine and spirits player without a big position in beer, was a natural buyer. Over the past decade, its investments in marketing and distribution, along with a growing U.S. Hispanic population, turned Corona and Modelo into strong growers. After Constellation's disappointing quarterly report and stock tumble in January, management was asked on an analyst call about long-term alcohol headwinds and blamed the economy.

"Alcohol's percent of the consumer basket remains consistent," Constellation CEO William Newlands said, but "the overall basket is down." Unsatisfied, Jefferies and J.P. Morgan both downgraded the stock. Kirk points out that beer sales rose 3% during the quarter. "If that's a bad quarter, that sounds reasonable to me," he says.

Boston Beer might be due for a name change. Around 85% of its revenue comes from hard cider, seltzer, and tea. Kirk is encouraged by recent growth in its Twisted Tea and Sun Cruiser Iced Tea Vodka.

The Search for Value

Even declining industries can produce winning stocks. In Stocks for the Long Run, Jeremy Siegel pointed out that Philip Morris, now Altria Group, was the best-performing stock in the S&P 500 from 1925 through 2007. It has continued to beat the market since then. Advertising restrictions keep costs down. High taxes provide plenty of cover for price hikes. But mostly, the combination of a chronically low stock valuation and big dividend has worked out, at least so far. Shares traded recently at 10 times earnings with a 7.7% yield. The cigarette smoking rate just tied an 80-year low, says Gallup.

The bar isn't quite as low for Constellation stock, at 12 times projected earnings, or Boston Beer, at 22 times. Brown goes for about 17 times; Anheuser, 14 times; and Molson Coors, nine times. Cautious investors might want to wait for either further share-price declines or signs of stabilizing demand before shopping.

There are other possible contributors to weak alcohol sales. The cost of alcohol consumed at home is up 12% over the past five years, versus 4% over the prior five, according to government inflation data. For drinking out over the same stretch, prices are up 21%, versus a prior 9%. Young consumers have new competition for their income, like legal sports betting. Population growth in rich markets is slowing. A new class of obesity drugs, which have taken a bite out of snack food shares, are believed to also curb the urge to drink alcohol.

Roth's Kirk recently published a list of 2025 alcohol predictions -- scenarios that he calls possible but not quite likely. Constellation could sell its wine and spirits businesses to its founding family and focus on beer. A big retailer could drop alcohol for health reasons, like CVS did with tobacco. An overstocked distiller might buck trends by altering some of its supply to a higher proof. "If there was a Beam Extreme, I think consumers would get excited," says Kirk.

Shufelt says he's open to running Athletic as a private company "forever, " or combining with a bigger company with more resources, or taking a different route. "On the right day, I'm very excited about an IPO," he says. His top prediction is that nonalcoholic beer can reach 20% of beer sales, up from 1.5% now, with Athletic leading the charge. Getting there, he says, won't require an alcohol collapse. It could mean adding more drinking occasions. Some 80% of his customers also consume alcohol.

"Alcohol has been around for 5,000 years," says Shufelt. "It's probably premature to call an abrupt end to alcohol in any way. And we're certainly not cheering for that."

Write to Jack Hough at jack.hough@barrons.com. Follow him on X and subscribe to his Barron's Streetwise podcast.

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February 10, 2025 00:01 ET (05:01 GMT)

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