Beringer, Chateau St.Jean, Etude, and Penfolds are all names that evoke an image of high quality and in the cases of Beringer and Penfolds, tremendous consistency across broad product lines. These are just some of the wineries that Treasury Wine Estates (TWE) is fortunate to own in their impressive fine wine portfolio. This raises the question: Why not invest in the stock of a company that deals with wine rather than having to deal with the perceived headaches and overhead involved in wine investing?
Recently, I wrote an extensive article about investing in fine wine as a diversification tool (click here to view). Media coverage of record wine auctions are the attention grabbers; however studies have shown collectible wines to be a compelling investment, as well as a potential hedge against traditional investments. This is the case especially in bear markets and I feel these findings strongly support looking in wine in this manner. With that said, companies such as TWE, Diageo, and Constellation offer, compared to investing in bottles, a more traditional investment play that involves wine. For the purpose of this article, my focus will surround TWE, as it’s the only pure wine play out there, the other two have substantial spirits holdings as well.
My first direct experience with TWE came when I attended a Heritage Tasting of the Penfolds line-up in Boston earlier in the year. Considering the way TWE puts on informative and aspirational events such as this for restaurateurs, shop owners, distributors, and state liquor buyers, it shows the level of class and understanding that they have. Add to this a product line that has two sensational collectibles as trophy pieces, Penfolds’ Grange and Beringer’s Private Reserve, along with a highly knowledgeable and reputable sales force (many of which are Certified, Advanced or Master Sommeliers) and TWE looks to be a compelling company. This high quality, luxury character has even attracted lustful looks from the bigger companies and private equity firms that are continually inquire about a buy-out.
That being said, investing in TWE is vastly different than investing in individual bottles of wine. When a wine is released, there is little uncertainty about the quality of the wine. The likes of Robert Parker, James Suckling and other noteworthy critics assist investors, collectors and consumers in identifying quality prior to purchase. Conversely, when a wine company is trading on the stock market, for example TWE on the Australian Exchange, there’s much uncertainty about its future profitability.
The best way to illustrate this difference is to look at TWE and their trophy wine, Penfolds Grange. A collector can confidently go out and purchase a bottle of 2005 Grange, knowing it’s of superior quality as it was rated 96 by Robert Parker and traditionally has massive demand as an investment wine. TWE, the company that owns Penfolds Grange, can’t go out and rely on analysts ratings or name recognition alone to succeed in the market place. Rather they must rely on strong sales of their full line-up, global demand for Australian and Californian wines, marketing expenses, strength of their sector, as well as a host of other variables to remain attractive to investors and profitable.
This doesn’t make TWE as a wine stock unattractive; it simply means that it has a different route to success than a bottle of one of their wineries’ wines does in the collectibles market. Understanding this fundamental difference illustrates and strengthens my argument that wine is a solid diversification tool, or even as a standalone investment. Because its quality is known, it can be effectively collected much in the same way art, stamps and other non-financials can. They’re a known substance, whereas the stock and bond markets are dynamic. This is why in bear markets it’s been shown that wine has very low correlation to traditional investments. This is why wine makes sense.
This is not a recommendation to buy, sell or hold any of this stock; however what this article was meant to do is to make wine lovers aware that there are companies out there that have significant wine holdings that drive their performance.