Investors tend to avoid unpopular FTSE shares, and that’s understandable to some extent. Why bother with laggards when there are rocket ships you can jump aboard?
But the market often overshoots both ways. Rocket ships can quickly become punctured blimps, while fundamentally solid businesses trading at cheap valuations can (eventually) make a comeback.
With that in mind, here’s one beaten-down FTSE 100 share that might just be worth a second look.
A multi-year hangover
There’s no doubt spirits maker Diageo (LSE:DGE) is radioactive! After falling for four straight years, the stock’s down 63% since January 2022.
In January, I backed Diageo to finally have a positive year in 2026. That now looks premature, with the stock down 8.6% year to date. And with sales still under pressure, and inflation rising, there’s a chance things might get even worse before the year is out.
Yet I continue to believe Diageo can mount a recovery, especially with turnaround specialist ‘Drastic’ Dave Lewis as chief executive.
In February, he stated: “Only several weeks in I can already see significant opportunities for Diageo to act more decisively to enhance its competitiveness and broaden the portfolio offering leading to higher growth“.
He highlighted three immediate priorities:
- Build competitive category strategies, winning with relevant brands.
- Customer, customer, customer.
- Redesign of the Diageo operating framework to drive sustainable returns.
Digging deeper
Admittedly, a couple of these sound a bit vague. But he’s highlighting things that, once addressed, should strengthen Diageo’s financial performance.
For example, Diageo has been losing share in the growing ready-to-drink (RTD) category in key markets like the US. Lewis has mentioned smaller, more affordable packs to address the ongoing reality that consumers are trading down due to economic pressure.
Moving forward, its portfolio will probably be relevant at every price point, not just in the premium end. Lewis said: “I do not want the Diageo business to be something that has to rely on the economic temperature in order to be successful. That’s going to be the change in the strategy you see going forward“.
Lewis also called Diageo’s inability to service existing demand in some regions a “source of significant regret.” Some pubs have been selling out of Guinness due to its surging popularity. But the flip side is that there’s an opportunity to service all demand and improve the customer experience.
On the final operating framework point, Lewis has admitted: “The way that we operate is not as clear and not as agile as it could be“.
Sharp-elbowed Diageo?
To me, this sounds like the new chief executive is going to make Diageo a lot more competitive, perhaps even sharp-elbowed. I think shareholders will welcome this, because at times in recent years it seemed Diageo had become a bit passive.
That is, the firm appeared to be just sat waiting — almost regally, with its premium portfolio — for consumer spending to recover. For the economic temperature to warm up. Then sales would pick up.
But times are tough and Drastic Dave isn’t going to hang around. Indeed, he reckons Diageo’s “culture is thirsty for us to be a little bit more competitive“.
The stock’s trading cheaply and offering a 3.3% dividend yield, even after the recent cut. I reckon Diageo’s worth considering as a turnaround play while it’s still radioactive.
