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Tap Into This Cheap Beverage Maker

Erin Lash: The consumer defensive space once again lagged the broader markets' recovery in the third quarter through the beginning of September, chalking up a low-teens percent gain versus the mid-teens amassed by the broader market.

Despite this more tepid performance, we continue to view the consumer defensive space as slightly overvalued, trading at a 4% premium in aggregate to our assessment of intrinsic value. This outsized valuation is particularly pronounced within the consumer packaged goods and defensive retail subsectors, which trade at high single- to low double-digit percent premiums relative to our fair value estimates. Despite this, we continue to see value within the alcoholic beverage arena, which trades in aggregate at nearly a 15% discount to our intrinsic valuations.

Since the onset of the pandemic, the dichotomy between at-home and away-from-home food consumption has continued to persist. More specifically, at its peak in April, at-home food consumption accounted for 66% wallet share, which is far above the historic 50-50 split that has tended to characterize the space. As such, we think the onus is on consumer packaged goods manufacturers to ensure that they're continuing to invest behind innovation and marketing so as to keep these newly acquired consumer households within their foray. In addition, we think that this spend also stands to ensure that they remain entrenched partners for retailers that will be looking to continue to drive traffic to retail outlets even as concerns surrounding the pandemic subside.

Conversely, we think that the markets' concerns surrounding away-from-home food consumption are overdone. More specifically, we think that as social distancing mandates are relaxed and concerns surrounding the virus begin to fade, that at-home food consumption will approach pre-pandemic levels by 2022.

For investors interested in the consumer defensive space, we'd suggest no-moat Molson Coors TAP as quite attractive at present, trading at a 40% discount to our $55 fair value estimate. While its legacy brands have struggled to transition into higher-end growth segments of the alcoholic beverage space, we think its recent entry into hard seltzer could prove quite interesting based on initial results. In addition, we think that the margin of safety implied by the current share price suggests irreparable brand damage across its major trademarks, which we think is unwarranted. As such, we think investors should consider building a position in no-moat Molson Coors.

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