Constellation Brands Stock: Buy, Sell, or Hold?

Constellation Brands (NYSE: STZ) shareholders are grappling with the sobering reality of a bitter stock price performance over the past year. Share prices of the beer, wine, and spirits giant are down about 37% from their 52-week high amid a less-than-stellar sales trend in recent quarters. The stock has also been under pressure due to concerns that the company may be pulled into the Trump administration's trade war, as it imports a significant portion of its beer products from Mexico.

The headlines don't inspire much confidence, but there are still plenty of reasons investors shouldn't give up on this beaten-down industry leader quite yet. Let's discuss what to do with Constellation Brands stock now.

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The case to sell Constellation Brands stock

Constellation Brands has grown into a dominant force in the beer market, holding exclusive rights to market and sell the flagship Corona and Modelo brands in the United States. The company is further diversified as one of the world's largest wine producers, with a portfolio of premium brands alongside a smaller spirits segment.

As the largest U.S. beer importer, Constellation Brands faces some unique challenges, as the Trump administration appears to be going through with imposing a 25% tariff on some Mexican imports (others are paused until April 2), where nearly all its beer is bottled and brewed. Though full details have not yet been disclosed, Constellation faces higher costs per unit that could hit earnings.

Previously, the company attempted to downplay the concerns, noting it sources several inputs like barley and hops domestically, meaning it may have room to mitigate the fallout. The company's latest statement suggests it is still assessing the situation. All this is in an environment where recent financial trends have pointed to growing uncertainty.

In the last reported fiscal third quarter (for the period ended Nov. 30), net sales growth and adjusted earnings per share (EPS) were both flat year over year, with management citing weaker consumer spending in a challenging macroeconomic backdrop.

Investors who believe Constellation Brands will struggle amid this new round of uncertainty could consider selling the stock, or at least avoiding it for now.

Image source: Getty Images.

The case to buy or hold Constellation Brands stock

Beyond any near-term headwinds related to tariffs and even the economic environment, it's important for investors to not lose track of the big picture. Constellation Brands remains highly profitable, supported by a leading market position and loyal consumer following. Indeed, Modelo is the top-selling beer in the U.S., dethroning Bud Light from rival Anheuser-Busch InBev in 2023.

By this measure, it may not be much of a surprise that billionaire investor Warren Buffett and his team at Berkshire Hathaway found something compelling about Constellation Brands to make it one of their newest investments. According to a recent corporate filing, the financial conglomerate purchased 5.6 million shares of Constellation Brands for $1.2 billion during the last quarter (ended Dec. 31) and now holds a 3.1% stake.

Though Berkshire's specific reasoning for the purchase is undisclosed, Constellation fits Buffett's investing philosophy, which focuses on companies with strong brands, steady cash flows, and growth potential. It's not a guaranteed winner, but knowing that fundamentals have been vetted by a legendary investor is reassuring.

What I like about the stock is its current valuation. Constellation Brands stock is now trading at just 12 times its consensus 2025 EPS as a forward price-to-earnings (P/E) ratio. The stock's apparent value is also evident in the dividend yield, which has climbed to 2.4%, well above the five-year average yield closer to 1.5%.

Investors who are confident Constellation Brands will emerge stronger have a good reason to buy and hold the stock now for the long run.

Data by YCharts.

Decision time: Time to take a sip

I'm cautiously bullish, viewing the bottle of Constellation Brands stock as half-full. Recognizing the uncertainties, there is a case to be made that the deep sell-off has already more than priced in some of the worst-case scenarios for the company.

The upside from here is that Constellation Brands can outperform a low bar of expectations. For investors with a long-term time horizon and who can stomach volatility, it may be time to take a sip and buy a small position in the stock for a diversified portfolio.

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Dan Victor has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool recommends Constellation Brands. The Motley Fool has a disclosure policy.