Best Stock to Buy Right Now: Constellation Brands vs. Altria

Key Points

• Constellation is grappling with tariffs and weak demand.

• Altria is dealing with declining smoking rates.

• One of these blue chip giants has a brighter future.

• 10 stocks we like better than Constellation Brands ›

Constellation Brands (NYSE: STZ) and Altria (NYSE: MO) are both often considered stable blue chip stocks for income investors. Constellation is one of the world's largest producers of beers, wines, and spirits, while Altria is the largest tobacco company in America.

Over the past three years, however, Constellation's stock stumbled nearly 30% as Altria's stock rallied more than 40%. Let's see why the tobacco maker outperformed the alcoholic drink maker by such a wide margin -- and if it will remain the better investment for the foreseeable future.

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Why did Constellation's stock stumble?

Constellation generates most of its revenue from its beer business, which sells popular brands like Modelo, Corona, and Pacifico. A smaller percentage comes from its wine portfolio, which includes Kim Crawford, Robert Mondavi, and The Prisoner, and its spirits business, which sells Casa Noble Tequila, Svedka Vodka, and High West Whiskey. It generates nearly all of its revenue in the United States.

Constellation faces three major challenges. First, its younger consumers are drinking less beer. To cope with that slowdown, Constellation is launching new types of alcoholic beverages (like hard seltzer) and alcohol-free drinks.

Second, its sales of lower-end wines are declining. To offset that pressure, it divested its cheaper brands and focused on strengthening its premium brands.

Lastly, the Trump administration's tariffs are driving up the costs of importing its best-selling Mexican beers. The company can offset some of that pressure by shipping more of its beers in glass bottles instead of aluminum cans (which are exposed to those higher tariffs), but an estimated 39% of its beer shipments from Mexico are still delivered in cans. It also faces production bottlenecks at its Mexican plants.

Therefore, Constellation's top-line growth is being throttled by the divestments in its wine and spirits division and its softening beer sales. At the same time, the unpredictable tariffs, inflationary headwinds, and capacity constraints will continue to compress its margins.

From 2024 to 2027, analysts expect Constellation's revenue to decline from $10.2 billion to $9.9 billion as it continues to right-size its business. Its earnings per share (EPS) is expected to grow at a compound annual growth rate (CAGR) of 7%.

Its business certainly isn't collapsing, but its near-term headwinds and a lack of catalysts are making it an unappealing investment. The company's stock looks cheap at 14 times forward earnings, and it pays a decent forward yield of 2.5%, but its upside potential could remain limited.

Why did Altria's stock soar?

Altria generates most of its revenue from its flagship Marlboro cigarettes but also sells other cigarette brands, cigars, and smokeless products like e-cigarettes, snus, and nicotine pouches. It spun off its international business as Philip Morris International in 2008 and now generates nearly all of its revenue from the U.S. market.

Altria's domestic concentration can be a double-edged sword. On one hand, it's well-protected from tariffs and foreign-exchange headwinds. On the other hand, adult smoking rates in the U.S. have steadily declined over the past six decades.

The company counters that pressure by raising its cigarette prices to offset its declining shipments, cutting costs, and buying back a lot of shares to boost its EPS. It's also aggressively expanding its portfolio of smokeless products (especially e-cigarettes and nicotine pouches) through investments and acquisitions to curb its long-term dependence on cigarettes.

In 2022, Altria's $12.8 billion investment in the e-cigarette maker Juul backfired as the Food and Drug Administration (FDA) banned all of its products. But after that big write down, it acquired Njoy, which sells FDA-approved e-cigarettes, for $2.8 billion in 2023. It expects that acquisition to start boosting EPS in 2026.

From 2024 to 2027, analysts expect Altria's revenue (net of excise taxes) to dip from $20.4 billion to $20.2 billion as its core cigarette business continues to shrink. They expect its EPS to decline this year as it laps some big one-time tax benefits and the sale of its rights to Philip Morris International's Iqos heated tobacco products.

But from 2025 to 2027, Altria's EPS is expected to have a steady CAGR of 5%. Its stock still looks cheap at 12 times forward earnings, and it pays a hefty forward yield of nearly 7%. Altria is a slow-growth stock, but it arguably doesn't face as many pressing issues as Constellation Brands.

The better buy: Altria

Constellation's business might stabilize over the next few years, but there aren't enough compelling reasons to buy its stock. Altria also faces some long-term challenges, but its business seems more stable, it pays a bigger dividend, and trades at a lower multiple. Those strengths all make Altria the better stock to buy right now.

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Leo Sun has positions in Altria Group. The Motley Fool recommends Constellation Brands and Philip Morris International. The Motley Fool has a disclosure policy.