Warren Buffett doesn’t like many stocks these days. But many doesn’t mean any.
The multibillionaire investor added to Berkshire Hathaway‘s (NYSE: BRK.A) (NYSE: BRK.B) positions in five existing stocks during the fourth quarter of 2024. He also initiated a new position in one stock. Buffett has never cared about what analysts think. However, many on Wall Street seem to agree with his latest pick and believe it could soar more than 40% over the next 12 months.
Buffett’s big Q4 buy
Berkshire bought over 5.6 million shares of Constellation Brands (STZ 3.95%) in Q4. At the end of 2024, this position was worth roughly $1.24 billion.
Constellation Brands ranks among the world’s top marketers of beer, wine, and spirits. Its premium beers include Corona, Modelo, and Pacifico. Its wine and spirit brands include Casa Noble Tequila, High West Whiskey, and Meiomi premium wines.
This isn’t the first alcoholic beverage maker Buffett has added to Berkshire’s portfolio. The conglomerate also owns a small stake in Diageo, which markets products including Crown Royal and Johnnie Walker whiskies, Guinness beer, and Smirnoff vodka.
The investment in Constellation also gives Buffett a position in the cannabis industry. Constellation owns a significant stake in Canopy Growth, one of the largest Canadian cannabis producers. However, Constellation’s bet on Canopy hasn’t paid off as hoped.
Why analysts like Constellation Brands
Of the 26 analysts surveyed by LSEG in February who cover Constellation Brands, 17 rate the stock as a “buy” or “strong buy.” The other nine analysts recommend holding the stock.
Even more impressive, though, is how Wall Street thinks Constellation will perform over the next 12 months. The average price target for the stock is $243.80. This reflects an upside potential of 43%.
I suspect Buffett and many analysts would agree that Constellation’s valuation is attractive at the current level. The stock trades at around 11 times forward earnings. It’s significantly cheaper now than it was during the fourth quarter when Berkshire initiated its position.
Bernstein is among the most bullish about Constellation. The investment company’s latest 12-month price target for the stock is $300, well above the average analyst’s target. Bernstein analysts believe the sell-off in Constellation’s shares after the company’s fiscal 2025 Q3 results announced in January was overdone.
However, not everyone on Wall Street is as optimistic about Constellation’s near-term prospects. For example, Piper Sandler downgraded the stock from “overweight” to “neutral” (the equivalent of a “hold” recommendation) and cut its price target from $245 to $200. The potential impact of tariffs by the Trump administration is the main factor behind Piper Sandler’s downgrade.
Is Wall Street right about this new Buffett stock?
I’m not confident that Constellation stock will rise as much over the next 12 months as the average Wall Street price target implies. Constellation faces too many uncertainties, in my view.
The possibility of tariffs is definitely a concern. Although President Trump delayed the implementation of 25% tariffs on all imports from Mexico into the U.S., it’s too early to know if some level of tariffs will be imposed.
Even without tariffs, Constellation is dealing with some headwinds. Consumer demand for wines has fallen. Inflation remains a factor that’s weighing on consumer spending. Constellation Brands CEO Bill Newlands mentioned in the company’s Q3 earnings call in January that consumers were adopting “broader value-seeking behavior across consumer goods.”
However, Berkshire’s initiation of a new position in Constellation provided a catalyst. It’s possible that further purchases of the stock could give an additional boost this year.
Over the longer term, I think both Buffett and Wall Street will be proven right about Constellation. The company is the strongest player in the premium beer market. I don’t foresee that changing. Buffett only buys a stock when he thinks the price is right relative to its earnings growth prospects over five years or more. I believe he made a good decision with Constellation and view the stock as a solid pick for long-term investors.
Keith Speights has positions in Berkshire Hathaway. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool recommends Constellation Brands and Diageo Plc. The Motley Fool has a disclosure policy.