While Anheuser-Busch (BUD) brand Budweiser carries the slogan “King of Beers,” the narrative on surface level doesn’t seem so appealing. While years removed from a social media controversy that angered many on the right, another political problem has threatened to unsettle BUD stock. With President Trump announcing that planned tariffs against Canada and Mexico will go into effect, this headwind should be troublesome for Anheuser-Busch.
However, very much the opposite situation is happening. On a year-to-date basis, BUD stock gained over 21% — one of the surprising winners of the new year so far. While Anheuser-Busch is known for domestic brands such as Budweiser and Bud Light, it also imports several popular brands like Mexico’s Estrella Jalisco. As such, the tariffs could represent a hit to its revenue streams.
Yet the company’s latest earnings report reveals that there may be true substance behind the rally in BUD stock. In the company’s fourth-quarter earnings report, Anheuser-Busch beat analysts’ estimates on both the top and bottom lines. For the year, sales reached $59.8 billion, a new record.
To be sure, the beverage maker should be praised for delivering an outstanding financial performance. Nevertheless, there is somewhat of a cynical development here. While Anheuser-Busch owns the popular Corona brand worldwide, it had to divest the U.S. rights of the Mexican beer to Constellation Brands (STZ) in 2013. Back then, the Justice Department forced the divesture due to antitrust concerns.
I’m sure it hasn’t gone unnoticed the deep irony in this matter. More than a decade ago, high-level political action forced Anheuser-Busch to give up a fast-growing, high-margin brand in the U.S. Today, President Trump’s tariffs have effectively blunted the advantage of owning said brand.
Following the Smart Money in BUD Stock
Another reason for Anheuser-Busch’s strong performance amid a worrying economic backdrop is management’s flexibility. Executive leaders have remarked that the company is adjusting and trying different approaches to soften the blow of the tariffs. Some of these tactics and strategies involve hedging, which means offsetting potential losses due to material cost increases by trading assets in various markets.
So far, the market is appreciative of the company’s creativity. In the past five sessions, BUD stock gained almost 11%. What’s more, following Monday’s close, it represented one of the top names in Barchart’s unusual stock options volume screener. This data interface shows what the smart money is doing in the derivatives market, which could precede larger movements in the open market.
Total volume on Monday reached 12,194 contracts against an open interest reading of 203,671 contracts. While it wasn’t outright the most remarkable performance, the latest session represented a 72.33% volume lift over the trailing one-month average metric. Further, the put/call volume ratio landed at 0.54, indicating that more traders were buying calls than puts.
In fairness, a low put/call ratio isn’t automatically desirable — after all, people can sell calls, which may have bearish implications. That’s where options flow is a handy tool. Filtering for only big block transactions, options flow essentially broadcasts the sentiment of professional or institutional investors. On Monday, net trade sentiment stood at $595,400, clearly favoring the bulls. Therefore, the put/call ratio could be interpreted at face value.
Finally, here’s an interesting tidbit about BUD stock. Like most securities, the vast majority of pricing action involves only one week streaks — either a positive week or a negative week. Two-week streaks are rarer but not uncommon. However, BUD has just recently clocked in its seventh consecutive up week.
This has only happened three times since January 2019 and not only that, the trend was never broken by a down week but rather a neutral (0% gain) one.
A Steady Outperformer in a Troubled Landscape
For clarity, the biggest moves in BUD stock may be in the rearview mirror. I’m not anticipating a continuation of double-digit percentage gains in one-week increments, which are also very rare. Still, if you’re looking for a place to protect your money in the troubled tariff-imposed landscape, Anheuser-Busch could be interesting.
While it’s going to be impacted by tariffs, Anheuser-Busch has been far more resilient and pliable than many of its peers. It also doesn’t have to deal with the challenges of Corona sales in the U.S., which will likely be a headache. At the same time, Anheuser can push its domestic brands — along with some smart, patriotic marketing — and make further inroads.
No, it’s not an exciting investment. However, with more than enough drama playing out in the political sphere, BUD stock may offer a nice respite.
