Lecture Notes: Warren Buffett's Investment in Constellation Brands

Introduction

• Warren Buffett: At 94, CEO of Berkshire Hathaway, continues to invest in new stocks.
• Recent Investment: Constellation Brands (Ticker: STZ), significant new addition to Berkshire's portfolio.

Background Information

• Constellation Brands is involved in the alcoholic beverage market.
• Buffett's purchase: Over $1.2 billion worth of STZ, despite the stock comprising less than 0.5% of the portfolio.
• Other recent investments include additional increases in Domino's, Pool Corp, Sirius XM, and Occidental.

Constellation Brands Details

Business Overview

• Alcohol Market: Owns or holds distribution rights for brands like Corona, Modelo, Pacifico.
• Diversification: Involved in wine, spirits, and has stakes in Canopy Growth (can-infused drinks).

Investment Challenges

• Stock Performance: Stock price fell by over 30% since Buffett's purchase.
• Cannabis Market: Investments in Canopy Growth haven't met expectations.
  • Stock dropped from $400+ to <$2.
  • Constellation distancing from Canopy Growth.

Financials

• Beer Market: Dominant in North America despite competition from Anheuser Busch and Molson Coors.
• Sales: Around $10 billion; comparatively smaller than competitors.
• Growth: Mid single-digit sales growth.
• Valuation: Forward PE and PEG ratios over 20% and 30% cheaper than the sector average.
• Dividend: Yielding about 2.4%, with a payout ratio <30%.

Challenges and Opportunities

Stock Valuation

• Reasons for Price Drop:
  1. Unsuccessful cannabis investments affecting growth prospects.
  2. Underwhelming earnings report and lower guidance.
  3. Inflation and potential new tariffs by President Trump.

Market Position

• Tariffs: Threats of 25% tariffs on Mexican imports (Corona, Modelo made in Mexico).
  • Current status: No escalation; reciprocal tariffs in discussion.
• Long-term Potential: Strong business fundamentals; potential for stock rebound.

Conclusion

• Buffett's Strategy: Likely betting on long-term potential despite short-term challenges.
• Market Analysts: Target estimates show potential for significant appreciation.

Personal Insights

• Investment Perspective: Tempted by value play but currently focusing on growth and dividends.
• Future Considerations: Might invest if it continues to fall and presents an even more attractive value proposition.

Discussion: Audience encouraged to share opinions; video aimed at providing an update and insights.