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Feb 15, 2023 (InvestorBrandMedia) — Investors are looking to get back into the markets this year according to a range of industry data from brokers and clearinghouses. But they will have to contend with a key market signal that is screaming “recession ahead!”
Specifically, the spread between the yield on the 2-yr treasury note and the yield on the 10-year treasury note – also often called “the 2-10 curve’ – is now deeply negative. At -0.86%, this spread is at its lowest level in over 40 years.
Every time we have seen this spread turn negative in that time, recession has quickly followed. It is telling us that short-end interest rates are too high to support sustained economic growth. In most cases, it would be telling the Fed to start cutting rates to brace for the slowdown. However, this time around, inflation is too high to allow that adjustment.
As a result, most major Wall Street houses are forecasting recession in coming quarters.
But that doesn’t mean investors have nowhere to turn for growth and returns. It just means you have to be selective.
One area of the market that generally cruises through recessions is the so-called “sin” sector, which includes alcohol, cigarettes, and gambling. During the good times and the bad, people keep paying for their sins.
To reframe the situation, these are staples, not cyclicals. People cut back on fancy new hi-tech gadgets and expensive vacations long before they cut back on beer and toilet paper.
But that doesn’t mean you have to sacrifice growth to get this recession-proof quality. In fact, there are plenty of small-cap growth names that fit the bill.
One good example of threading this needle is 1812 Brewing Co. Inc. (OTC US:KEGS), the upstart disruptor on the make in the craft beer industry. The company is building a nationwide network of craft breweries to drive brand growth at the local, regional, and national levels.
According to company materials, KEGS looks to build a network wherein certain economies of scale can be shared across it such as production, distribution footprint expansion, inter-member contract brewing, new product development, sharing of best brewery practices, and scale logistics and transportation.
The network is to be built through investment by 1812 Brewing Company while maintaining the members’ respective local and regional uniqueness, brand autonomy, and direct involvement with its consumers.
The company produces award-winning beers such as War of 1812 Amber Ale, 1812 Light, Hazy Oasis Pale Ale, Thousand Islands IPA, Malicious Intent IPA, Route 11 Lager, Railroad Red Ale, Helles Bells Pilsner, St. Stephens Stout, Third Rail Porter, and Featherhammer Maibock.
We should also point out that it looks to be expanding into Canada. The big news just hit in January – 1812 has started the application process needed to enter the Canadian beer market.
The Company’s proximity to the Province of Ontario, along with Ontario’s position as Canada’s largest beer market, were reportedly major factors in management’s decision to begin the process with The Liquor Control Board of Ontario.
The Path Ahead
KEGS just put out a key shareholder update that gives us plenty of insight into where this story is headed.
According to the update, 1812 Brewing Company has presented a potential acquisition candidate an Indication of Interest letter, which has led to in-person meetings with top management at the target. The company expects these meetings to occur in the following weeks, and management suggested that KEGS is targeting a binding Letter of Intent out of that stage.
Management also noted that this acquisition – if transacted – would be potentially transformational for 1812 Brewing Company in that it would allow the Company to show “proof of concept” with its brewery network strategy. The deal is contingent upon final terms and financing.
1812 Brewing Company’s entrance into the Canadian market is progressing. As stated previously, the Company has chosen to enter the market in the Province of Ontario and, as such, is applying for product approvals with the Liquor Control Board of Ontario. As products are approved it would clear the pathway for any to be sold at up to 450 of The Beer Store locations and possibly through the LCBO’s own stores, which are approximately 650. As this process continues, management will be sure to update shareholders.
The update also noted that 1812’s flagship product continues to be sold on TapRm.com’s website direct-to-consumers in 45 states plus Washington DC, and it is actively working to expand its exposure to that distribution point.
On each level, KEGS would appear to be a story in its early innings that is positioned for recession-proof growth.
The post Why KEGS Could Line Up as a Recession-Proof Growth Gem appeared first on Wall Street PR.
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