Warren Buffett’s Berkshire Hathaway has invested $1.24 billion in Constellation Brands, the company behind Mexico-produced beer labels Modelo, Corona and Pacifico.
The investment, which was confirmed in a regulatory filing on Friday, suggests the billionaire is betting on the long-term strength of the brands despite the threat of tariffs.
A 25 percent tariff on goods from Mexico is due to be implemented early next month, after President Trump reached an agreement with the US trade partner to delay the levies by a month.
If the tariffs do come in, it could mean the cost of beer produced in Mexico – as well as other alcoholic drinks – rises substantially for consumers.
A six-pack of Modelo would rise from around $11 to $13.75, USA Today reported earlier this year.
Citi’s lead beverages analyst Filippo Falorni said Buffett’s investment in Constellation Brands shows he is looking past the near-term issue of possible tariffs and considering the company’s long-term prospects.
‘The stock has been very weak, mainly due to concerns about [Trump] tariffs on its Mexican beer imports,’ he told Fortune.
‘However, looking past the near-term issue of tariffs, the long-term business remains very attractive with growth in the fastest-growing part of the beer category, favorable demographic trends with exposure to the faster-growing Hispanic population in the US, and large distribution opportunities for the Corona, Modelo, and Pacifico brands.’
Warren Buffett’s Berkshire Hathaway has invested $1.24 billion in Constellation Brands, the company behind Mexico-produced beer labels Modelo, Corona and Pacifico
Constellation Brands now represents 0.5 percent of Berkshire’s portfolio.
While the beverage company is headquartered in New York, its imports all of its beer labels from various locations across Mexico.
Falorni told Fortune Buffett’s investment is a ‘perfect example of value investing.’
‘Warren Buffett is looking at the value of the business in the long term and believes the stock is undervalued due to those external concerns,’ he added.
In the last several years, Modelo has overtaken Bud Light as the top selling beer in the US.
But despite this popularity, Constellation Brands has seen its stock price decline by 26 percent since the start of the year, largely due to tariff fears.
Following the news of the substantial investment by the so-called Oracle of Omaha, however, the company’s stock jumped.
In the past five days, it has gained almost 4 percent.
Buffett, who is worth $148 billion, is one of the most-watched investors of all time.
Thousands of investors follow and mirror his market moves, which can send individual stock prices flying – or over a cliff.
A six-pack of Modelo Especial Lager, the top selling beer in the US, could rise from $11 to $13.75 if a 25 percent tariff on Mexican imports is implemented
President Trump reached an agreement with Mexico to delay the planned levies until early March
Constellation Brands, which also owns Corona, has seen its stock price decline by 26 percent since the start of the year
In the last several days following Berkshire Hathaway’s investment, Constellation Brand’s stock has gained almost 4 percent
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Astonishing price rises that Trump tariffs will spark on everyday items
Earlier this month, Berkshire offloaded billions of dollars of stock in DaVita, a dialysis provider.
This sent DaVita down 11.1 percent in one day – the stock’s biggest one-day selloff in almost two years.
Even though Berkshire sold 203,091 shares, it still owns 45 percent of DaVita.
The stake, valued at $6.4 billion, has been part of Berkshire’s portfolio since 2011.
In a regulatory filing, Berkshire said the February 11 sale was required under a share repurchase agreement that meant DaVita had to buy back enough shares to reduce Berkshire’s ownership stake to 45 percent.
As of September, DaVita had ranked as Berkshire’s tenth-largest equity holding.
The sell-off comes as DaVita grapples with a new slate of headwinds, including escalating patient care costs and $24.2 million in expenses related to dialysis center closures.