Defensive stocks have outperformed the market as investors seek shelter in less-cyclical names. With many economists and fund managers predicting a recession, being cautious is ever more prudent.
IBD's alcoholic beverages is a staple defensive stock group and currently ranks a strong 27th out of 197 industries. The leader of the group, Molson Coors, is today's focus for IBD 50 Stocks To Watch.
Headquartered in Chicago, Molson Coors was formed in 2005 from a merger of Canada-based Molson and U.S.-based Coors. It is currently the fifth-largest beer company in the world, providing products to over 100 countries. Some of the company's biggest brands include Coors Light, Miller Lite, Molson Canadian and Carling.
Company Outperforms Peers In Sales Growth
With an IBD Composite Rating of 98, Molson Coors is one of the top stocks to watch in the stock market. The defensive nature of alcohol consumption has provided a lot of recent support for the stock. Strong financial results have also been a driver for outperformance vs. peers.
In first-quarter results, net sales increased 16.7% from a quarter prior with the company seeing stronger growth than many of its competitors. While inflation did have its effect — the costs of goods increased 4.9% on a reported basis — this was easily offset by increasing sales and higher prices.
Molson Coors reiterated its guidance for the full year. Sales growth is expected to moderate to mid-single-digit growth, while the company projects an underlying free cash flow of $1 billion. The brewer is also working on deleveraging debt with a goal to get debt below three times EBITDA by the end of 2022, from 3.4 times currently.
Molson Coors is a strong defensive stock, especially if the company is able to continue to successfully pass on inflationary costs to consumers.
Defensive Stock Not Necessarily Recession-Proof
Nevertheless, investors should take caution in considering the stock recession-proof. For example, during the 2008 recession, while hard liquor sales increased, beer consumption actually declined substantially.
Molson Coors stock is forming a flat base. While the majority of this base is below the 50-day moving average, the general resiliency of shares in spite of market weakness is a positive sign. With a relative strength line now near new highs, things are shaping up, especially if shares can break above the 50-day line and then out of the base. MarketSmith has identified a 57.55 buy point.
