Why Whiskey Advocate’s Pick for Distillery of the Year Is a Solid Investment

The same qualities that made this distillery Whiskey Advocate’s Distillery of the Year also make it a great investment. Read on if you want to find out why Diageo is primed for expansion.

Jan 17, 2014 at 10:00AM

When Whiskey Advocate, a leading authority in the beverage industry, chose their Distiller of the Year, they went big, massive in fact.                                  

Diageo (NYSE:DEO) is the largest listed beverage company in the world with a market capitalization of $82 billion and revenue around $18.2 billion in 2012. It owns six of the 20 best-selling brands measured by retail sales. This includes Johnnie Walker, the top seller by value, and Smirnoff, the number one premium spirit brand measured by volume. And Diageo owns the top-selling stout in the world, Guinness.

The Whiskey Advocate praised Diageo for their "substantial investment," "world-beating vision for future growth," "guardianship of brand history to reach out to consumers," and "incredible portfolio of whiskies to suit all pockets and preferences" in naming them Whiskey Advocate's Distillery of the Year.

But then again choosing a huge company makes sense. Whiskey is getting big – all types, scotch grew 16% in the U.S. in 2012, while bourbon production was up 5.2% in 2012, and Irish whiskey shot up 22.5% the same year. 

What's driving the swelling demand?
It has to be more than the Draper Effect that's driving the sales of whiskey across the board, but you have to give the Mad Men's debonair whiskey drinker some of the credit. Who doesn't feel cool drinking an Old Fashioned while watching the show and the commercials, especially the ones by Christina Hendricks, a.k.a Joan. The buxom red head saunters across the room – while I'm drinking my Old Fashioned -- and tells me "It's classic. It's bold. It's Johnnie Walker, and I ordered it."

Yes, I did. And forget Draper and the rest of the show, I am off to the liquor store to buy some Johnnie Walker, which by the way is a Diageo brand.

Diageo's best-selling scotch blend is benefiting from an increase in Scotch demand across the globe. In the first six months of 2013, the value of exports grew 11%, about $3.27 billion according to the Scotch Whisky Association. Also, 563 million bottles were exported during the same time period, a 9% increase over the first six months of 2012. 

Increasing the worth of blends
Johnnie Walker was one of the reasons Whiskey Advocate awarded Diageo the annual award. Diageo brought the brand's Gold Label Reserve and Platinum Reserve to the U.S. and those along with some other of their other blends changed the perceived value of blended malts in a lot of consumers' minds. Diageo also plans to introduce new single malt brands to the market, including three new regular Talisker expressions.

Demand for premium brands is trending up and increases profit margins as well. 

Transporting Brands Across the Globe
Diageo is also moving its whiskeys all over the globe. Two of its newest concoctions, Crown Royal Maple and Bulleit Bourbon 10 year old have started strong. One of the reasons, Diageo did not pursue Beam (NYSE:BEAM) more aggresively is their confidence in their own whiskeys. It is already ranked first with 23% of the North American whiskey markets with its own brands, including Bulleit Bourbon, Crown Royal, George Dickel, and 7 Crown. Diageo is neck-in-neck with its major competitor Brown-Forman (NYSE:BF-A), which also has 23% of the market. If you compare the two head-to-head, or rather free cash flow to free cash flow, DEO comes out on top. It has a a positive FCF $280 million, or $0.11 per share, while Brown-Forman is negative at $621 million, for a negative per share of $2.89.

Analysts estimate that 43% of Diageo's revenues come from emerging and developing markets. Expect this growth to rise as Diageo fully utilizes United Spirits in India in 2014. United Spirits has 42% of the share of the market, and its closest competitor is Pernod Ricard at 12%. Diageo's only has a 1% share in the market, but plans to grow with United Spirits by focusing on its premium brands. Market demand in India is currently propelled by premiumisation, or selling of more exclusive and expensive brands with great profit margins. 

Primed for expansion
All the attributes cheered by the Whiskey Advocate, along with Diageo's market share, top-ranked brands, cash for expansion into emerging markets, and competitive advantage due to its scale also make great sense for investors who want to put their money in a company primed for growth and able to expand. The stock is not necessarily undervalued, but should bring consistent, quality growth over the long-term. 

Fool contributor Chris Brantley has no position in any stocks mentioned. The Motley Fool recommends Diageo plc (ADR). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers