Is ‘Go Woke and Go Broke’ a Legit Investment Strategy?
Forget Politics, We’re Here to Make Money
Like probably many of you, I am exasperated on a near daily basis by the polarization of our country. Politics have gotten so intense, and the debate has gotten so heated that I see political opinion sneaking into places it formerly never lived – like LinkedIn. And FinTwit (financial Twitter).
I think you should try to keep all your personal biases out of your investing – it’s never good to make investing decisions based on a focus group of one – especially if you are that one person in the focus group. And at the top of the list of biases you should purge from your investing decisions are political biases. I believe financial decisions are usually best made from a position of unemotional steeliness – the opposite of the passionate state that closely held political beliefs might inspire.
So when I see people who say they are interested in the stock market spending a lot of time screaming at strangers on the Internet about politics and adding a #GoWokeGoBroke onto their tweets… I generally tune out. For the record, I do the same thing when so-called stock investors on the left post only about executive compensation, climate change, and exploited workers. These are valid topics – but if it’s all you can talk about, you’re online for the politics – not for making money in stocks.
If I want politics, I go to Facebook or TikTok. Twitter - I refuse to call it X, it sounds like a night club, recreational drug, or porn site – it’s for information that might make me money, so if you say you are all about the stocks but then spend most of your time railing about Hunter Biden or re-tweeting AOC, I mute or unfollow.
But a funny little thing happened this spring over at beer giant Anheuser-Busch InBev (BUD)…. ICYMI (how could you?), Bud Light – the #1 beer brand in America – set their business on fire with just one, presumably paid Instagram post from a popular transgender influencer. What happened had me sitting at my computer asking myself, could #GoWokeGoBroke actually be a legitimate investment strategy after all?
File This One Somewhere Between “New Coke” and the Idiotic Kendall Jenner Pepsi Ad
Unless you have been living under a rock, you probably know by now that Bud Light completely inflamed its customer base in April when it sent a case of Bud Light to transgender activist and TikTok celebrity Dylan Mulvaney. She made a video drinking the beer and endorsing the product.
This did not go over well with the former Bud Light-loyal.
This is an understatement.
Before long, the internet was flooded with videos of people using cans of Bud Light for target practice, including, notably, 90s rock-rapper Kid Rock.
Of course, the Internet had jokes.
The jokes came from the right…
And they came from the left…
Eventually, the executive in charge of the dud campaign was put on leave. And… the internet had even more jokes.
But laughing aside, the boycott held in reaction to this small marketing collaboration was no joke. Which is kind of a surprise, because American consumers love to threaten a boycott, but in most cases, the bark of such efforts turns out to be way more than the bite.
But not this time. When Anheuser-Busch InBev reported second-quarter earnings earlier this month, it revealed that U.S. sales fell more than 10% year over year and U.S. EBITDA was down almost 30%. The sales drop was said to be “primarily due to the volume decline of Bud Light.” Better performance from other brands in the portfolio – like Stella Artois and Corona – helped the company still put up solid 7% growth in the quarter, despite its U.S. revenues dropping 10.5%.
As result of the boycott, Bud Light’s market share in the U.S. retail beer market has dipped below 8%, versus the approximately 10% share it held before the marketing fiasco. In fact, the brouhaha led Bud Light to lose its claim to being America’s #1 beer. That title in recent weeks has been held by Modelo Especial, a Mexican beer distributed in the U.S. by Constellation Brands (STZ). Coors Light and Miller Lite – both owned by Molson Coors (TAP) - have also seen bumps in their market share this spring and summer.
Luckily for Anheuser-Busch InBev, it’s a diversified company that doesn’t live and die on the performance of Bud Light alone, which before the controversy, made up a substantial but not dominant 9% of sales at Anheuser-Busch InBev. Nevertheless, this hasn’t been a fun time to be a BUD shareholder, with the stock down about 16% since the controversy, versus the S&P 500 up about 6% over the same period.
And while the news cycle is fast and the American attention span generally tends to be short, unfortunately for Anheuser-Busch InBev, that doesn’t seem to the case here. According to recently released Nielsen data, Bud Light sales were down 26.5% for the week ending August 5. Sales declines may have stabilized, but the brand is not exactly bouncing back.
Even with heavy discounts at retail and substantial promotions, like a rebate of $15 for a 15-pack or larger purchased during July 4 week, sales are stuck in the mud, like a piece of beer can shrapnel in Kid Rock’s backyard.
What’s worse, is that the boycott seems to have spilled into the company’s other major U.S. brands…
So maybe #GoWokeGoBroke can make you money after all?
But not so fast, there’s one more data point to consider.
Brewski Beer Me at the Mojo Dojo Casa House
At the risk of alienating my predominantly male readership by going back to the Barbie well so soon after my last post… I’m going back there.
As I explained in my last post, right wing commentators came out swinging after this movie, criticizing the way it treats the male characters and how many times the word “patriarchy” is uttered out loud. When I saw the film’s monster opening weekend numbers, I must admit the first thing I thought was “so much for #GoWokeGoBroke.”
But then I saw something even more interesting. This map…
The map uses Google Trends data from opening weekend to see on a state-by-state basis whether interest was higher in Barbie or Oppenheimer. The more searches for Barbie exceeded searches for Oppenheimer, the deeper the pink of the state. The more Oppenheimer searches exceed Barbie searches, the deeper the blue. Those New Mexicans really dig their state history apparently.
The amazing thing about this map is how much it looks like an electoral map. The states that tend to vote Democrat blue are blue here too, preferring Oppenheimer. This includes the Northeast, California, and Washington. And the sunbelt that usually goes GOP red is bright pink here. But wait? Weren’t conservatives supposed to hate woke whining about the patriarchy?
This map reminds of the famous “Bizarro Jerry” episode of Seinfeld, where everything looks familiar yet is the opposite of how it normally is.
The success of Barbie has proven the ultimate contra-example to the #GoWokeGoBroke investment thesis. Barbie is very, very woke. It’s also making a very, very large amount of money. With $1.2 billion in global box office and counting, it’s already Warner Bros. Discovery’s (WBD) largest domestic release in its history, the #16 highest grossing release ever, and it’s almost guaranteed at this point to overtake The Super Mario Bros. Movie as the biggest film of 2023.
So Can We Make Money with the #GoWokeGoBroke Investment Strategy?
As often is the case in the markets, it depends. If applying black and white rules to the market was easy, we’d all be living that FIRE (Financial Independence, Retire Early) lifestyle.
It really depends on who you are selling to. Aggressively embracing diversity and inclusivity certainly didn’t work out so well for Bud Light, and it probably wouldn’t land so well either for outdoor retailer Cabela’s, gun maker Sturm Ruger (RGR), or Fox News (FOXA). On the other hand, plenty of other companies have happily – and profitably - leaned into Pride Month and other activities that tend to trigger conservative commentators. Any short-term struggles aside, it’s hard to say that wokeness has been unkind to Starbucks (SBUX) or Nike (NKE), which have returned 1326% and 1415%, respectively, over the last 20 years, versus 336% for the S&P 500.
The real takeaway here is that it’s important to know who your customer is.
Bud Light made an unforced error when they courted Dylan Mulvaney to do a post for them, but there are other times when companies find themselves dragged into a fight that they didn’t want but also couldn’t avoid. The ultimate example of that may be Disney (DIS) and its legal battles in Florida.
The lesson here is that companies need to cater to their customers’ needs, which is a complicated thing in an increasingly polarized world. “Starbucks of the Right” Black Rifle Coffee Company (BRCC) might have the luxury of a customer base that all leans in one direction, but for most companies, it’s just not that simple.
Nike, with more than $50 billion in global sales, is just too big a company to be selling to all big D democrats or GOP faithful. Yet it chose to stick its neck out a few years ago running an ad with the slogan “Believe in Something, even if it means sacrificing everything” featuring former NFL Quarterback Colin Kaepernick, who was released from the NFL in what was seen as retaliation for his kneeling during the National Anthem, an act meant to protest police brutality directed at Black Americans.
Nike does nothing by accident. You don’t get to be one of the most recognized brands in the world, and the largest footwear and apparel company globally by throwing stuff at the wall and seeing if it sticks. In 2018, burning your low-end Nikes and putting a video of it on the Internet was the equivalent of 2023’s Bud Light target practice. Yet in the last five years, Nike sales have grown $15 billion, or 40%. At the time of its decision to run the controversial ad, Nike probably ran a set of NPVs (net present value calcs) on its customer segments and decided that liberal, urban dwelling Air Jordan buyers had a greater lifetime value than the customers the ad was going to trigger. And Nike was right. The proof is in the numbers.
Getting Political Can Be a Money Maker for Companies, but It Rarely is For Investors
I’ve had some great investments in companies that were led by CEOs who sat at the other end of the political spectrum from me. I’ve also invested in companies whose presence has had negative externalities on society. An example of this is Meta Platforms (META). We’ve all heard about Cambridge Analytica and misinformation on Facebook during the 2020 elections. And Instagram isn’t exactly a place to visit to enhance your mental health – especially if you are a teenage girl. There are things I don’t love about Meta, but me not buying its stock when it was cheap – and oh boy, was it cheap last fall – isn’t going to change anything (except maybe make me poorer).
So I have learned what are inputs into my decision making and what aren’t – and politics are decidedly not an input. I’ve compartmentalized my financial life from my political life, and I recommend you do too.
That said, I don’t think you should leave your morals at the door when you invest. While you can ignore politics, if a company is engaged in a behavior or practice that keeps you up at night – life’s too short. Let it go up (or down), without you… being able to sleep well at night is priceless.
An example of this moral check out for me is tobacco stocks. I talk to a lot of value investors, so invariably at least a couple of times a year, someone pitches me a tobacco stock. Hey, they have great cash flow! Value investors love that. There will probably be times that you can make a lot of money in those stocks. But I will miss out. I won’t have FOMO about it.
Am I a hypocrite because I will buy Meta, but I won’t buy Altria (MO)? Maybe. But to me, literally nothing good comes out of tobacco use. And while Meta can cause tons of harm - and is a huge contributor to the polarization which is so annoying – it has offsets. It reunites people, it helps people keep in touch, it allows people in emergency zones to let loved ones know they are safe, it helps dogs get adopted, and people give away things they are done with to strangers, instead of dumping them in a landfill. Meta is the very definition of a mixed bag for society.
Let’s Finished Where We Started – I Pass on the Bud – But Not Because of the Boycott
Big beer has been in trouble for a long time. Beer consumption in the U.S. has been on the decline for at least a decade. IWSR data shows that beer volumes had a negative compound annual growth rate (“CAGR”) of -2% from 2017 to 2022, with 2022 worse than average at -3%. Spirits have been taking share from beer, and hard seltzer came out of nowhere as a major beer alternative, in many cases cannibalizing what would traditionally have been beer occasions – think White Claws at BBQs and Bachelorette parties. Making matters worse, the beer-faithful have increasingly turned to imports and craft breweries to get their hops.
Lots of Americans – especially young ones – are interested in quality over quantity when they drink, which doesn’t bode well for Bud and other mass beer brands. An interest in drinking smarter has also driven people away from beer and into alternatives like spirits, which tend to be lower in sugar and calories. This is a long-term, secular, cultural trend that is unlikely to reverse.
Making matters worse for Anheuser-Busch InBev, it’s sitting on a mountain of debt, accumulated from its many acquisitions. It’s a little over 4x leveraged in net debt to equity, an admitted improvement from the 5x leverage of just a couple of years ago – but still it’s high. Generating $8-9 billion annually in free cash flow, this company isn’t going anywhere. But declining market share in a market experiencing declining volumes for years? With a high fixed cost base? It could very well prove a value trap.
I’ve shorted this stock before, and I would again – although I probably wouldn’t right now. Because eventually, consumers will likely move on from this boycott… and when they do the stock could have some upside.
Now, if only people would move on from the culture wars….
Some Interesting Things I Read Recently
As Hollywood Strikes Roll On, Viewers Have a Chance to Catch Up
New York Times, 8/12/2023
Your fall TV season has been canceled… but do you even care? Speaking of which….
Broadcast and cable make up less than half of TV usage for the first time ever
CNBC.com, 8/15/2023
Ruh roh.
Why Is Everybody Watching ‘Suits’?
Rolling Stone, 8/15/2023
I’m not watching Suits. But a lot of people are. That Netflix suggestion algorithm is a powerful free time overlord.
Coach & Kors’ Marriage of Convenience
Puck, 8/14/2023
I could write a book about all the ways this Tapestry (TPR) deal to buy Capri (CPRI) is bizarro. Top of the list is the timing and price. When was the last time that you saw a company agree to be acquired at a 16% discount to where it was trading just a few months ago? There are expense synergies here, but I worry about the opposite of synergies with revenues. Puck’s Lauren Sherman summarizes the red flags in this deal well. Also, I have a little quote in there.
Weight Loss Drug Cuts Risk of Heart Problems, Maker Says
New York Times, 8/8/2023
As I said to a friend yesterday, the two sexiest stories in this market are AI and Ozempic. I have been a fan of drugmakers Eli Lilly (LLY) and Novo-Nordisk (NVO) for several years. The stock charts make it look like we are in the late innings here, but I think it may still be in the middle innings on these GLP-1 type drugs. Studies like the one in this article will make it harder for insurance companies to continue to resist covering these drugs.
Who Employs Your Doctor? Increasingly, a Private Equity Firm
New York Times, 7/10/2023
I’ll just leave this chart here:
Thought Provoking Tweet du Jour
Prosperous Investing!
Disclaimer: This content is for informational and educational purposes only and does not constitute financial advice or a recommendation for a particular investment.
Disclosure: The author may have a personal financial interest in the securities mentioned. At the time of publication, personal investments included DIS and META.
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