Every now and again, I like to write about the best brand stocks to buy. However, the subject of the article is not necessarily what you might guess it’s about.
You’re probably thinking it’s about great brands like Nike (NYSE:NKE) or Lululemon (NASDAQ:LULU). While they are just that, they do not have the word “brands” in their corporate name.
My most recent attempt to identify the best stocks to buy for building a “brands” portfolio was last September. The three names: Yum! Brands (NYSE:YUM), Fortune Brands Innovations (NYSE:FBIN) and a very speculative pick with Tilray Brands (NASDAQ:TLRY).
Relative to the S&P 500, they’ve gotten crushed over the past nine months. It’s a reminder why Warren Buffett’s advice that most investors should just buy a low-cost S&P 500 index fund makes sense.
Alas, InvestorPlace is for actionable ideas about specific stocks, sectors, hot trends and other investment ideas.
Here are my three best brands stocks to buy for the long haul.
Constellation Brands (STZ)
Constellation Brands (NYSE:STZ) is the largest of the three companies on my list with a market capitalization of $48.08 billion.
In recent years, it’s become best known as the U.S. rightsholder for Corona Extra, Modelo Especial and other beer-related products from Grupo Modelo, now owned by Anheuser-Busch InBev (NYSE:BUD).
However, in addition to these beer products, Constellation also produces Corona-branded seltzers, ready-to-drink products under the Fresca brand, Kim Crawford wine, Casa Noble tequila, Svedka vodka, other fine spirits and wines.
And who can forget the company’s big move into cannabis, investing $4 billion into Canopy Growth (NASDAQ:CGC) in 2018, only to watch that investment shrink to $190 million as of April 18, 2024.
It now owns 26.2% of the cannabis company’s stock, however, these shares are all non-voting and non-participating. While Canopy continues to lose money — an adjusted EBITDA, or earnings before interest, taxes, depreciation and amortization, loss of $59 million in 2024, 72% lower than a year ago — its business is in a better position financially than it has been in some time.
Analysts like STZ stock. Of the 26 that cover it, 21 rate it a “Buy,” with a $300 target price, 17% higher than a year earlier.
Acuity Brands (AYI)
Acuity Brands (NYSE:AYI) is a stock that I’ve followed and liked for some time. I included AYI stock in my September 2021 iteration of the Brands portfolio. While it struggled for 24 months until bottoming last October, it’s up 52% in the eight months since.
The provider of commercial and residential lighting solutions has delivered for shareholders since CEO Neil Ashe was hired in January 2020. Its shares have more than doubled since. Year-to-date, they’re up more than 23%.
Acuity reported its Q2 2024 results in April. While its revenues declined 4% year-over-year to $906 million, its adjusted operating profit increased 6% in the quarter to $118 million. Its adjusted earnings per share rose 11% to $3.38.
“Our fiscal 2024 second quarter was another quarter of solid execution,” stated Neil Ashe, chairman, president and CEO of Acuity Brands, Inc. “We increased our adjusted operating profit, adjusted operating profit margin and adjusted diluted earnings per share. We generated strong free cash flow, and we allocated capital effectively to drive value.”
Based on trailing 12-month free cash flow of $504.2 million, its highest level in several years, and an enterprise value of $7.78 billion, it has a free cash flow yield of 6.5%. Anything between 4% and 8% is fair value. Above 8% and you’re in value territory.
Kontoor Brands (KTB)
Kontoor Brands (NYSE:KTB) is the smallest of the three stocks with a market cap of $3.81 billion. Its shares are up over 10.6% year-to-date and over 148% over the past five years.
Kontoor is the company behind the Lee, Wrangler and Rock & Republic denim brands. It spun off from VF (NYSE:VFC) in May 2019. Shareholders got one Kontoor share for every seven VF held. VF has not had an easy go of it since the spinoff. Its shares are down 85%.
As for Kontoor, it is a good stock to own for income-focused investors. It currently yields nearly 3%, considerably higher than the average yield of 1.3% for the S&P 500.
The company’s Q1 2024 results were better than expected with an anticipated revenue decline of 5%, a 270 basis-point increase in adjusted gross margin to 45.7%, and $1.16 earnings per share, flat to last year.
However, it raised its EPS guidance for 2024 to $4.75 at the midpoint, up five cents from its previous outlook. It expects revenue to be $2.6 billion, flat year-over-year.
Of the seven analysts that cover its stock, six rate it a “Buy,” with a $77 target price, 15% higher than where it’s currently trading.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.