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Inflation Report

Two Stocks from Defensive Sector Amid Rising Inflationary Environment – STZ, VGR

Dec 23, 2022

1.1 Summary Table

1.2 The Key Positives, Negatives, and Investment summary

1.3 Key Metrics:

The first graph shows STZ Free cash flows are in an increasing trend from the last 5 years apart from FY22 due to capital expenditure and investment in a certain business. Secondly, the Dividend per share is again in an increasing trend from the last 5 years even in the case of challenging macro environments showing that the company has not only created wealth for shareholders but also returned capital to shareholders in an inflationary environment. Additionally, the below charts show that the Beer contribution in total sales has increased from 70.5% to 76.6% implying Beer Business continued to significantly outpace the entire beer category.

Section 2: Constellation Brands Inc (“Buy” at USD 231.01, closing market price as on December 22, 2022)

2.1 Company Details

2.2 Valuation and Technical Guidance

Markets are trading in a highly volatile zone currently due to certain macroeconomic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Vector Group Ltd (NYSE: VGR)

1.1 The Key Positives, Negatives, and Investment Summary

                                                                                                                                     1.2 Key Metrics:

The adjusted net income from continuing operations for the third quarter of 2022 and 2021, respectively, was USD 37.6 million and USD 33.9 million along with a 26.9% rise in sales. Consistent earnings and record sales have produced an upward-rising FCF generation curve, except for Q3FY20, when COVID-19 outbroke led to lockdowns not just in the USA but throughout the world. There is a favorable differential of 10.73% between the company's LTM free cash flow yield of 14.4% and the US 10-Year Treasury Bond Yield of 3.67%. The greater the cushion in difficult times signifies a better margin of safety. This is determined by the difference between FCF yield and US Treasury Bond Yield at the time the stock is purchased.

1.3 Continuous Dividend Payment:

Vector continued its customary quarterly cash dividend distribution in the third quarter of 2022. For the nine months ending September 30, 2022, Vector returned USD 95 million to investors at a quarterly rate of USD 0.20 per common share. With a continuous dividend payment history dating back to 1988, VGR has an impressive dividend yield of 7.01% p.a. at the present pricing. A normal quarterly cash dividend on Vector Group Ltd.'s common stock in the amount of USD 0.20 per share has also been approved by the board of directors. The quarterly cash dividend will be paid on December 20, 2022, to shareholders having records as of December 9, 2022.

Section 2: Vector Group Limited (“Buy” at USD 11.41, closing market price as on December 22, 2022)

2.1 Company Details

2.2 Valuation and Technical Guidance

Markets are trading in a highly volatile zone currently due to certain macroeconomic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing. 

Note 1: Past performance is not a reliable indicator of future performance.

Note 2: The reference date for all price data, currency, technical indicators, support, and resistance levels is December 22, 2022. The reference data in this report has been partly sourced from REFINITIV.

Note 3: Investment decisions should be made depending on an individual's appetite for upside potential, risks, holding duration, and any previous holdings. An 'Exit' from the stock can be considered if the Target Price mentioned as per the Valuation and or the technical levels provided has been achieved and is subject to the factors discussed above.

Note 4: The report publishing date is as per the Pacific Time Zone.

Technical Indicators Defined: -

Support: A level at which the stock prices tend to find support if they are falling, and a downtrend may take a pause backed by demand or buying interest. Support 1 refers to the nearby support level for the stock and if the price breaches the level, then Support 2 may act as the crucial support level for the stock.

 Resistance: A level at which the stock prices tend to find resistance when they are rising, and an uptrend may take a pause due to profit booking or selling interest. Resistance 1 refers to the nearby resistance level for the stock and if the price surpasses the level, then Resistance 2 may act as the crucial resistance level for the stock.

 Stop-loss: It is a level to protect against further losses in case of unfavorable movement in the stock prices.


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