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Ride Out Market Volatility with These 4 Beverage Stocks

Zacks Equity Research

CBOE Volatility Index (VIX), which measures investor perception of the market’s risk, saw a steep rise on Tuesday, escalating almost 10%. Major U.S. indices were also under tremendous pressure in yesterday’s trading session, due to a meaningful pullback in financials. The benchmark S&P 500 lost 1.24%, thereby breaking its 109-day streak of not losing 1% or more on a single day. The Dow and the Nasdaq also lost 1.14% and 1.83%, respectively.

Behind this volatility are growing concerns over economic disappointments from the Trump administration. Meanwhile, Federal Reserve’s relative conservative rate guidance has kept the financial stocks in check.

Importantly, blue chip companies were mostly down with few exceptions. The consumer staples sector in particular mitigated the downtrend to some extent. A key player in the space, The Coca-Cola Company KO, rose 0.8% to $42.50, turning out to be the best-performing Dow component. Pepsico, Inc. PEP also lent support to the space, inching up 0.56%.

Given this widespread uncertainty, investors are wondering where to park their money. They can go for safer stocks considering that other economic indicators are coming in positive.

Favorable Economic Data

Consumer Confidence, a key determinant of the economy’s health, improved significantly in February, reaching its highest level since Jul 2001. According to the recent Conference Board data, the Consumer Confidence Index rose to 114.8 last month from January’s revised reading of 111.6. This indicates that consumers have given Trump’s revolutionary ideas the thumbs up.

Spiraling consumer confidence, an improving job scenario and rising wages are indicators of a stronger economy. Naturally, investing in consumer staples stocks is safer because of their defensive nature. In fact, these stocks have the potential to counter macroeconomic headwinds and seem quite reliable and attractive.

Within the consumer staples sector, Beverage-Alcoholic needs special mention, as it falls within the top 19% of the Zacks Industry Rank. The industry grew 9.2% in the last three months, faring a lot better than the 4.8% growth of the broader market (S&P 500).

This Beverage-Alcoholic industry has lower beta of 0.69 - less than 1 - ensuring less volatility.

4 Prominent Picks

It goes without saying that the Consumer Staples sector projects itself as a lucrative investment hub amid the current economic scenario. Here we have highlighted four beverage stocks that are ready to ride on the confidence exuded by the economy. These have a favorable combination of a Zacks Rank #1 (Strong Buy) or 2 (Buy) with lower market risks.

Castle Brands Inc. ROX develops, markets, imports and sells beverage alcohol products in the U.S. and other countries.

The stock climbed 68.1%, outperforming the Beverage-Alcoholic industry. The stock sports a Zacks Rank #2 and has a market beta of 0.61.

Castle Brands is expected to witness 150% growth in earnings per share this year.

Compañía Cervecerías Unidas S.A. CCU operates as a beverage company principally in Chile, Argentina, Bolivia, Colombia, Paraguay, and Uruguay.

The stock carries a Zacks Rank #2 and has a market beta of 0.47. Compañía Cervecerías climbed 21.3% in the last three months, outperforming the Beverage-Alcoholic industry. You can see the complete list of today’s Zacks #1 Rank stocks here.

Ambev S.A. ABEV, through its subsidiaries, produces, distributes and sells beer, draft beer, soft drinks, other non-alcoholic beverages, malt and food in the Americas.

Ambev carries a Zacks Rank #2 and advanced 15.2% in the last three months, faring better than the Zacks categorized Beverage-Alcoholic industry. It also has a lower market beta of 0.69 and 3–5 year expected EPS growth rate of 7.23%.

Tsingtao Brewery Company Limited TSGTY, together with its subsidiaries, engages in the production, distribution, wholesale, and retail sale of beer products primarily in the People's Republic of China.

The stock soared 23.4% in the last three months, outperforming the Beverage-Alcoholic industry. It also holds a Zacks Rank #2 and has a market beta of 0.64. Its 3–5 year expected EPS growth rate is pegged at 7.76%.

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