Cramer -- Diageo May Be Upgraded but Constellation Brands Still My Favorite

NEW YORK (TheStreet) -- Is the likelihood of consolidation the reason why analysts at J.P. Morgan and Credit Suisse upgraded shares of Diageo plc (DEO)? TheStreet's Jim Cramer thinks it is. Diageo shares are up 1% on Tuesday.

On Monday the analysts upgraded the company to hold from sell. Cramer, co-portfolio manager of the Action Alerts PLUS portfolio, explained on CNBC's "Stop Trading" segment. The beer industry has been consolidating "for years," he said. Diageo has beer brands such as Guinness as well as spirits. So it may not be a perfect fit for many potential buyers because of the different channels of distribution for the different types of alcohol. 

In this sector Cramer said that Constellation Brands (STZ) is "still my favorite," but he also likes Molson Coors Brewing (TAP).

DEO Chart
Diageo DEO data by YCharts

As for Diageo, he said the analysts have nailed the move lower, pointing out Diageo shares have been "a dog" over the past year. But the M&A potential is too much of a risk to maintain a sell rating. 

Part of Diageo's underperformance can be tied to China, where spirits demand was expected to be strong. Weakness in the country has resulted in disappointing spirits sales for Diageo, Cramer added.

At the time of publication, Cramer's Action Alerts PLUS had no position in companies mentioned.

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