Undervalued Anheuser Busch Stock Has a Bad Case of Market Irrationality

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You probably wouldn’t pick Anheuser Busch (NYSE:BUD) as a play on the novel coronavirus.

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Unlike other publicly traded companies that have found positive momentum as states ease social restrictions, Anheuser Busch stock remains deeply embattled on a year-to-date basis. Nevertheless, I believe the markets are acting irrationally. When you break down BUD stock, this is one of the most compelling discount stocks available.

First, the technical picture as I said doesn’t intuitively come across as a potential recovery narrative. Last week, I discussed the bull case for Boston Beer Company (NYSE:SAM), which is backed by a strong management team, an equally strong brand and a compelling product mix.

Unsurprisingly, SAM shares have skyrocketed off their March lows. In contrast, Anheuser Busch stock is wandering aimlessly.

However, you can also look at this as a case of BUD building long-term support. Many investors don’t want to buy into momentum; rather, they prefer getting in on the ground floor. But if you can stomach the risk, the potential for BUD is explosive.

This brings me to my second point. Although the coronavirus has been devastating for virtually all businesses, it has also created pockets of opportunities for a select few companies. One of them is Anheuser Busch.

As you know, the company specializes in budget beer brands such as Budweiser, Bud Light, Michelob Ultra and Busch Beer. In the pre-coronavirus days, that didn’t quite help the case for Anheuser Busch stock, as millennials overwhelmingly prefer craft beer to traditional “corporate” brands.

But genuine craft beer is primarily consumed in restaurants, bars and tasting clubs. These institutions went out of commission during the quarantines.

Economic Realities Bolster the Case for Anheuser Busch Stock

Now, it’s true that restaurants going out of commission isn’t a completely clear-cut catalyst for BUD stock. After all, Anheuser sells their brands to restaurants as well. Furthermore, budget beer is huge at sporting and live events. Obviously, even with the return of sports, we won’t know when governing agencies will allow large gatherings.

However, the critical point about craft beer is that smaller companies were left with very few mitigating options. As I discussed about Boston Beer, they too had to deal with expiring kegs. But because of their strength and influence, they were able to channel their resources to make the best of the situation. Most craft breweries don’t have that luxury.

Cynically, this dynamic opened an opportunity for Anheuser Busch stock in that the underlying company essentially received free organic marketing. Just because a pandemic hits town doesn’t mean consumers will magically abstain from imbibing. In fact, every data source indicates that consumers flocked to grocery stores to stock up on essentials: food, water, toilet paper and beer…lots and lots of beer.

Indeed, reports indicate that all alcohol categories saw significant sales increases, but especially so for budget beer. Specifically, Anheuser’s Busch Light sales jumped 44% over a two-month period. Put another way, demand for alcoholic products has always existed. The virus outbreak merely shifted it from one channel (bars and restaurants) to another (home consumption).

Better yet, Anheuser Busch stock is likely to be unaffected by the velocity of economic rebound over the next several months. If we have a quick recovery, consumers will probably maintain their budget-focused mentality just in case. Because this crisis was so steep and unprecedented, they’re not about to throw caution to the wind.

If we slog it out, though, BUD still looks good because of its main products’ lower price point.

BUD Could Be an Unlikely Hedge

If you’ve followed my work during this troubling time, you’ll know that I’ve always focused on the bigger picture. The megatrends I’ve been harping on for years will still reshape global societies; the novel coronavirus has merely delayed those shifts.

As you can see for yourself with the alcohol demand, great opportunities don’t die. Instead, they filter down the path of least resistance.

That said, if we were to suffer a protracted recession, Anheuser Busch could turn out to be an unlikely hedge. According to data from the Great Recession, drinking increased significantly in the home as workers sought coping mechanisms from the many pressures associated with the downturn.

To be clear, I’m not suggesting that investors buy BUD from the cynical angle that people will drink their troubles away. Tthat phenomenon will always be with us in any circumstance. Instead, I’m pointing out that millions of consenting adults turn to various products to help them deal with daily life. In a recession, this spark will only grow stronger.

As well, many restaurants and breweries could go out of business because of the coronavirus. Thus, I would expect continued high demand from grocery stores, which is a net positive for BUD.

Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. The power of being “first” gave Matt’s readers the chance to bank +2,438% in Stamps.com (STMP), +1,523% in Ulta Beauty (ULTA) and +1,044% in Tesla (TSLA), just to name a few. Click here to see what Matt has up his sleeve now. Matt does not directly own the aforementioned securities.