There is no doubt that the 2020s decade started on a disastrous note. Covid-19 set the world economy back significantly, and along with it, the stock markets. Slowly but surely, we appear to be putting that behind us now.
Are we at the start of the Roaring ‘20s?
The US and China, two of the largest country economies in the world, have shown robust growth in recent months already. The UK is expected to bounce back from last year with sharp growth later in the year as well. And this may not just be restricted to one year alone. Moreover, massive public spending is underway, which could fuel growth for years to come. This will firmly put the poor start to the 2020s behind us. Instead, the decade will be similar to the decade of economic prosperity seen 100 years ago, in the 1920s, in the western world. The decade came to be known as the ‘Roaring ‘20s’.
One aspect of such prosperity is increased consumer expenditure. Following from this, I expect that there will be greater spending on non-essential categories over the foreseeable future. Fashion brands to travel companies can benefit from this trend.
Alcohol to benefit
But here I would like to focus on the drinks’ industry, which may also see significant increase in demand. Besides rising consumer spending, the reopening of pubs and restaurants to large groups, opening of nightclubs and the resumption of large events can encourage more consumption of alcohol. Two UK shares that can benefit from these trends are the Johnnie Walker producer Diageo (LSE: DGE) and mixer-drinks manufacturer Fevertree Drinks (LSE: FEVR). Indeed, signs of progress are already beginning to show up.
Diageo’s results were impacted by Covid-19, but things are looking up. In its latest trading update, the company said that its organic profit growth will be at least 14% this year. FeverTree Drinks does not give out any forecasts for the year. But in its latest trading update, it does mention strong sales growth in markets like the UK and US.
Even if the current decade does not turn out to be ‘Roaring’, drinks’ companies still have an advantage. Their demand does not fluctuate as much as that of other non-essential spends. So even if economic conditions are sluggish, they can continue to show robust growth.
The one hiccup
The only condition here is that the Covid-19 pandemic needs to be put behind us. Alcohol consumption at commercial establishments is an important source of revenue. Last year’s sales were impacted because of the lockdowns, even though they were partly offset by strong increases in at-home consumption. But I reckon that for sales to truly boom, the economy needs to be fully open as well.
Would I buy the UK shares?
With hopes of a more normal 2021, both shares’ prices have shown sharp increases. While the Diageo share price is up by almost 30% over the past year, the Fevertree share price is up 24%. I reckon they can rise more. I would consider buying both stocks.
Manika Premsingh has no position in any of the shares mentioned. The Motley Fool UK has recommended Diageo and Fevertree Drinks. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.