Matrix Asset Advisors, an asset management company, released its Q3 2025 investor letter. A copy of the letter can be downloaded here. The stock market continued its recovery from the April lows, gaining +8.12% in the third quarter and +14.83% YTD. The Matrix Large Cap Value strategy delivered a strong performance in the third quarter, which modestly outperformed the S&P 500® gain and was significantly ahead of the Russell 1000 Value® Index. Following a strong first half of the year, the Matrix Dividend Inc ...

Rochester, New York-based Constellation Brands, Inc. (STZ) is a leading producer and marketer of premium alcoholic beverages, best known for its portfolio of high-end beer, wine, and spirits. Valued at a market cap of $22.8 billion, the company holds exclusive U.S. rights to top beer brands such as Corona, Modelo, and Pacifico. Shares of this alcoholic beverages producer have significantly lagged behind the broader market over the past 52 weeks. STZ has declined 46% over this time frame, while the broader ...

Core Viewpoint - Constellation Brands presents a potential investment opportunity despite challenges in alcohol consumption, particularly among Gen Z, as indicated by Berkshire Hathaway's recent share purchases [1][2]. Group 1: Alcohol Consumption Trends - Alcohol consumption remains a constant, with Constellation earning approximately 95% of its revenue from beer, including popular brands like Modelo [3][4]. - Historical evidence suggests that beer production has persisted for thousands of years, indicating a potential recovery in consumption trends [4][5]. Group 2: Dividend Appeal - Constellation has a strong dividend history, having paid dividends since 2015 and increasing its annual payout every year, currently offering $4.08 per share with a yield over 3.1% [6][7]. - The company generated about $1.85 billion in free cash flow over the last 12 months, significantly exceeding its $724 million dividend expenditure, indicating a stable payout [7][8]. Group 3: Valuation Metrics - The stock's current P/E ratio is 19, below the S&P 500 average of 31, with a forward P/E of 11 suggesting it is undervalued [9]. - Despite a 45% decline in stock price over the past year due to lower consumption concerns, analysts project a stabilization in revenue for fiscal 2027 [9][11]. Group 4: Share Repurchase and Market Position - Constellation has reduced its share count by 3% over the last year, with an outstanding share count of 175 million, positioning the stock for potential price increases with rising demand [12][14]. - The company controls several prominent beer brands in the U.S., enhancing its market position and likelihood of retaining business [13][14].

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Core Insights - The article highlights three top consumer brands offering attractive dividend yields ranging from 2.91% to 4.89%, presenting opportunities for passive income amidst market volatility [1]. Company Summaries - **Constellation Brands**: - Forward dividend yield is 2.91% - Shares have decreased by 49% from recent highs due to macroeconomic challenges, presenting a buying opportunity - The company owns popular Mexican beer brands, including Modelo and Corona, with new product Corona Sunbrew becoming the top new beer brand in the U.S. [3][4] - **Hershey**: - Forward dividend yield is 2.97% - Stock has fallen by 33% from previous highs due to record cocoa prices and poor harvests, making it a good buying opportunity - Hershey has a strong brand presence with top products like Reese's, contributing to an $11 billion snack business, and has paid dividends for 95 years, indicating financial stability [5][6][7][8] Market Context - Both Constellation Brands and Hershey are facing near-term challenges but have profitable businesses that support their dividend payments, making them attractive for income investors [7].

Core Insights - Berkshire Hathaway continues to invest in the stock market despite high valuations, with a focus on specific companies [3][5][10] Group 1: Berkshire Hathaway's Investment Strategy - Warren Buffett's investment philosophy warns against high market valuations, as indicated by the Buffett indicator, which is currently at an all-time high of 219% [2] - Despite market concerns, Berkshire Hathaway has initiated and increased positions in three key stocks: Constellation Brands, Lennar, and Pool Corp [3][5][10] Group 2: Constellation Brands - Berkshire Hathaway has a 7.7% stake in Constellation Brands, valued at approximately $1.9 billion, with purchases made in Q4 2024 and Q1-Q2 2025 [5][8] - The company is recognized for its strong market position, particularly with its premium beer brands like Corona and Modelo [6] - Constellation Brands has demonstrated reliable free cash flow, generating $1.1 billion in the first half of fiscal year 2026, which supports its dividend program and stock buybacks [9] Group 3: Lennar - Berkshire owns both class A and class B shares of Lennar, a major U.S. homebuilder, with purchases made in early 2025 [10][12] - The ongoing housing shortage in the U.S. is expected to benefit Lennar's long-term growth prospects [12] - The stock trades at under 14 times forward earnings estimates, which may be viewed as attractive by Buffett [13] Group 4: Pool Corp - Berkshire initiated a position in Pool Corp, holding a 9.3% stake worth over $1 billion, with consistent purchases since Q3 2024 [14] - Pool Corp's shares trade at 26.6 times earnings estimates, which is considered a premium price [15] - The company has a strong market position and generates predictable cash flow, with over 60% of revenue coming from repairs and maintenance [16]

Core Insights - Constellation Brands, Inc. (NYSE:STZ) is recognized as one of Warren Buffett's top stock picks with significant upside potential, maintaining a Buy rating from Evercore ISI with a price target of $170 [1][4] Financial Performance - In Q2 FY2026, Constellation Brands reported adjusted earnings of $3.63 per share, exceeding consensus estimates by $0.22. However, revenue was approximately $2.48 billion, slightly below expectations [2] - The company faced volume challenges in its beer segments but managed to navigate these issues despite macroeconomic pressures [2] Brand Loyalty and Market Position - The company demonstrated increased brand loyalty, particularly for its Corona and Modelo brands, with Corona Familiar showing exceptional performance [3] - CEO Bill Newlands indicated that Corona Familiar may be a larger brand than previously estimated, highlighting its status as one of the top share gainers in its category [3] Analyst Outlook - As of October 21, the average price target for Constellation Brands is $169, suggesting an upside of nearly 19.65% from current levels [4] - The company operates in multiple segments, including Beer, Wine and Spirits, and Corporate Operations, with well-known brands such as Corona, Modelo, Robert Mondavi Winery, and Kim Crawford [4]

Core Viewpoint - Berkshire Hathaway continues to actively invest in stocks despite Warren Buffett's impending retirement, indicating confidence in the long-term potential of selected companies [1]. Group 1: Investment in Lennar - Berkshire Hathaway purchased 5.1 million shares of Lennar, investing a significant amount amid a volatile housing market [2]. - Lennar's stock price has fluctuated, dropping from over $180 to around $100, before recovering to approximately $120 as of mid-October [2]. - The company generated $35 billion in revenue over the past year, but net income decreased to $2.7 billion due to rising costs and falling home prices [3]. - Buffett and Berkshire Hathaway view Lennar as a potentially undervalued stock with growth prospects if interest rates decline, as indicated by its low P/E ratio of 12.7 [4]. Group 2: Investment in Constellation Brands - Constellation Brands, focused on Mexican beer, has seen its stock decline by 48% due to falling beer consumption in the U.S. and an 8.7% drop in beer shipments year-over-year [5][6]. - Despite the decline in alcohol consumption, Berkshire Hathaway perceives Constellation Brands as a discounted investment with long-term pricing power, trading at an enterprise value-to-EBIT of 11 [6]. - The company’s high-quality beer brands are gaining market share, suggesting potential for future shareholder returns [7]. Group 3: Investment in Chevron - Chevron, a major player in the oil and gas sector, is Berkshire Hathaway's fifth-largest holding, with its stock seen as a hedge against inflation [9]. - The company's performance is closely tied to oil prices, which have significantly dropped since the onset of the Russia-Ukraine war, leading to a decrease in net income to $14 billion [10][11]. - Despite a P/E ratio of about 20, Chevron's shares offer a 4.5% dividend yield, with potential for earnings growth if oil prices rise [11][12].

Core Insights - The consumer staples sector, particularly food and beverage companies, has faced significant challenges due to tariff impacts, with many stocks underperforming the S&P 500 since April [4][5][11] - Major companies in the sector reported declines in operating income and net sales, with some experiencing drops of 20% or more [1][6][10] Company Performance - Constellation Brands reported a 13% decline in operating income and a 15% drop in net sales for its fiscal Q2 2026 [1] - Hormel Foods experienced a 20% decline in stock value, citing unexpected surges in commodity input costs [6] - Molson Coors Beverage's stock is down 25%, with upcoming earnings reports anticipated to provide insights on sales and pricing [7] - Keurig Dr. Pepper also saw a 25% decline, with management highlighting challenges from rising costs and tariffs [8] - Conagra Brands reported a 5.8% year-over-year drop in revenue and a 26% decline in adjusted earnings per share, while maintaining its full-year guidance [10] Sector Trends - The Consumer Staples Select Sector SPDR Trust has underperformed the S&P 500 by over 30 percentage points since early April, indicating a broader struggle within the sector [4] - Only two out of 37 components in the trust have outperformed the S&P 500 since tariff announcements, highlighting the severity of the downturn [3] - The defensive nature of food companies has been challenged, as the expected stability from consistent consumer demand has not materialized amid tariff turmoil [5] Economic Environment - The macroeconomic environment remains volatile, with low consumer sentiment impacting consumption trends [8] - Rising inflation and tariff costs are expected to continue affecting profit margins and consumer behavior, particularly during the critical holiday quarter [11]

Core Viewpoint - Constellation Brands has shown signs of recovery after a significant decline, with shares rebounding from a low of $132 to just below $143, aided by a mixed but somewhat encouraging Q2 2026 earnings report [1][2][3] Financial Performance - Constellation reported revenues of $2.48 billion, a 15% decline and approximately $200 million lower than expectations, but gross margin increased by 100 basis points to 52.8%, exceeding analyst expectations [2][3] - Adjusted earnings per share (EPS) came in at $3.63, a 16% drop but significantly above expectations of $3.37, indicating that the company's outlook has not worsened materially [3] Market Outlook - The MarketBeat consensus price target for Constellation is nearly $189, suggesting a potential 31% rally, while updated forecasts from Wall Street analysts average around $163, indicating a more conservative potential increase of about 14% [5][6] - Despite the recovery, a more substantial rebound may take longer than previously anticipated [6] Demographic Trends - A key growth driver for Constellation is the increasing Hispanic American population in the U.S., which accounts for around 50% of the company's beer sales and is expected to continue driving population growth [7] - Immigration from Hispanic countries is also expected to benefit Constellation, as the company does not generate revenue in Mexico due to licensing agreements [8] Industry Challenges - Increased usage of GLP-1 drugs has been cited as a potential headwind for Constellation, as these drugs may reduce cravings and impact alcohol consumption; however, recent studies indicate little evidence supporting this claim [9][10] Long-Term Potential - Despite current challenges, Constellation's long-term potential remains strong due to its robust beer brands and favorable demographic trends, with shares trading approximately 85% below their all-time high, indicating substantial upside potential for long-term investors [11]