The US has picked Donald Trump over Democratic candidate Kamala Harris as its next President.
The Republican candidate is broadly expected to raise tariffs on foreign goods that many believe will lead to higher prices, lower income, and economic retaliation from other nations.
As the international trade potentially reshapes under a Trump administration, three alcoholic beverage stocks: Brown-Forman, Constellation Brands, and Diageo will likely be negatively influenced moving forward, as per Robert Moskow – a TD Cowen analyst.
Brown-Forman Corporation (NYSE: BF.B)
TD Cowen expects Brown-Forman which owns a bunch of renowned brands like Jack Daniel’s and Old Forester to underperform after Trump’s victory as it “sees a high likelihood of the EU reinstating tariffs on American whiskey.”
Why? Because the region has a history of retaliating against higher tariffs.
When Trump raised tariffs on aluminum and steel during his firm term, for example, the European Union responded with 25% import taxes on American whiskey.
It eased the rate under the Biden administration but is now expected to reinstate and even increase tariffs to 50% in 2025.
Nonetheless, Brown-Forman stock remains somewhat attractive for income investors as it pays a dividend yield of close to 2.0% in writing.
Constellation Brands Inc (NYSE: STZ)
Constellation Brands is another name that’s “most negatively exposed” to higher tariffs under Donald Trump as the President of the United States.
That’s because the New York-based company that makes its beers exclusively in Mexico will likely face higher tariffs under a Republican government.
“While there may be some government goodwill afforded to the company due to its reliance on US farmers, a tariff on Mexico would negatively impact its margin structure and disrupt the supply chain,” Robert Moskow told clients in a research note on Wednesday.
But about 25% of STZ’s cost of goods sold is peso-denominated. So, a devaluation of the Mexican currency could help offset (to some extent) the expected weakness in shares of the company that owns notable brands like Corona and Kim Crawford.
Diageo plc (LON: DGE)
TD Cowen expects higher tariffs under the Trump administration to “hit multiple areas” of Diageo’s business as well.
The London-based company produces its Don Julio tequilas in Mexico but generates about a quarter of its overall sales in the United States.
“Diageo [could] pass a portion of 25% potential tariff along to the consumer. But with the spirits category still weak, the elasticity impact of a large tariff-related price increase could be substantial,” according to the investment firm.
Diageo stock is already down more than 20% versus its year-to-date high in late February. However, it pays a rather lucrative dividend yield of 3.41% at writing which makes it somewhat better positioned in terms of total returns.
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