We're starting a new position in a beer stock that's holding up well in Thursday's market plunge

Published Thu, May 5 202211:44 AM EDTUpdated Thu, May 5 20222:08 PM EDT

We're initiating a position in beer, wine and spirits giant Constellation Brands (STZ), buying 100 shares at roughly $252.70 each. Following Thursday's trade, STZ's weighting in the portfolio will be 0.8%. Constellation Brands is getting a call up from the Bullpen, about two and half weeks after it was added to the Club's equity watch list. Shares were only modestly lower in Thursday's broader market carnage. Constellation Brands is best known for its Mexican beer brands — Corona, Modelo and Pacifico — the kind of beer people love to drink when they go out in summer months. It's a fitting buy on Cinco de Mayo, and we believe Constellation Brands is positioned for a strong holiday Thursday due to the easing of Covid restrictions compared to last year. We also want to mention that we like how the founding Sands Family has proposed ending Constellation Brands' dual-class common stock structure. Even with the premium investors would pay and the share dilution that would occur, the result should be a net positive for shareholders. If the company gets rid of its dual-class structure, the overhang related to the Sands Family's voting control will be removed, likely resulting in price-to-earnings multiple expansion. All else being equal, investors prefer buying stocks with single-class structures because of control. At 22x forward earnings, STZ is a GARP, growth at a reasonable price, stock — leaving plenty of room for a re-rating. That's why we're initiating this position with a price target of $300, which represents roughly 26.5x fiscal year 2023 EPS and about 18% upside from where the stock was trading in Thursday's plunging market. (Jim Cramer's Charitable Trust is long STZ. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

Bottles of Corona and Pacifico beer are displayed in a cooler at Marin Beverage Outlet in San Rafael, California.

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