By Nate Wolf

Beer companies tend to look forward to the summer, when drinkers stock up for barbecues, beach trips, and evenings on the porch. But alcohol stocks are in for a cool few months, analysts at Morgan Stanley say, and not just because of the unseasonable weather across the U.S.

Morgan Stanley issued a cautious outlook for the alcohol market in a research note, instead counseling investors interested in U.S. staples to reach for non-alcohol alternatives.

It isn't like alcohol stocks -- weighed down by tepid consumer sentiment, tariff fears, and "Dry January" -- have started the year well. Shares of major players like Constellation Brands, Molson Coors Beverage, Boston Beer, Diageo, and Brown-Forman are all down by double-digits in percent terms so far in 2025.

But that doesn't mean now is time to buy the dip, the Morgan Stanley team wrote. Alcohol companies face a host of long-term challenges, as consumers cut back on drinking and opt for healthier diet options -- something non-alcohol beverage companies can more easily offer.

Much of the problem for these companies is demographic. Gen Z adults drink less and less often than previous generations did at the same age, and they're more likely to see moderate drinking as unhealthy, as Barron's reported earlier this year. Meanwhile, many heavy drinkers are aging, taking prescription medications, and unable to throw back quite as many cocktails, the Morgan Stanley analysts argued.

Alcohol companies are also contending with a growing focus on health and wellness among consumers and regulators, including the Surgeon General's blockbuster advisory in January linking alcohol to cancer.

"In the U.S., we don't recommend any alcohol names," the Morgan Stanley group wrote. The analysts reiterated Underweight ratings for Diageo, Rémy Cointreau, and the Jack Daniel's maker Brown-Forman, and Equal-weight ratings for Molson Coors, Boston Beer, and Constellation.

But here's the thing: Unless they're sticking to tap water from here on out, people have to drink something. That's where non-alcohol beverages come in.

Companies like Coca-Cola, Monster Beverage, and Keurig Dr Pepper -- known for their sugary sodas and energy drinks -- face their own reputational hurdles. But they can, and have, added successful sugar-free or zero-calorie products, Morgan Stanley noted. Even tobacco giant Philip Morris, which has seen its shares skyrocket more than 50% this year, is better positioned for a health-conscious world than many alcohol companies, thanks to its massive smoke-free business.

Morgan Stanley's top pick in the U.S. staples space is Coca-Cola, because of its its strong fundamentals and attractive valuation. The firm also has Overweight ratings on Keurig, Philip Morris, and Monster, in ranking order.

All four of those stocks are up to start the year, and three of the four are up double-digits. In other words, they're trending the opposite direction of alcohol stocks.

Those alcohol valuations may start looking cheap, of course, especially after a couple of summertime porch beers. For now, though, Morgan Stanley is urging a more sober view of the sector.

Write to Nate Wolf at nate.wolf@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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June 17, 2025 16:05 ET (20:05 GMT)

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