If you’re a typical British investor considering your pension or ISA, you’ve probably heard the chatter about stock market jitters lately. Oil prices, having spiked to over $110 a barrel amid Middle East tensions, have led to significant volatility on the FTSE 100.
March was particularly rough but the recent recovery already looks fragile.
Fears of overvaluation are rife, with global shares near all-time highs despite stubborn interest rates and trade worries.
And just last week, Bank of England deputy governor Sarah Breeden warned on the BBC that markets are “too high” and “set to fall“. She cited risks like macro shocks and speculative AI hype not being priced in.
That sounds scary, right? But here’s the thing — it shouldn’t put you off investing altogether. Market dips are normal, and they often create buying chances for patient folks.
Downturns are opportunities, not disasters
Stock market slumps happen all the time, and smart investors treat them like sales rather than the end of the world. But you still need to be smart with the stocks you pick.
Take two FTSE 100 names, for example – one that might bounce back, and one that probably won’t
WPP, the ad giant, has lost about 83% of its value over the past decade. It’s down over 50% in the last year alone. The problem? It’s bleeding clients to nimbler rivals and lagging on AI tools that everyone wants.
Recovery isn’t impossible, but the outlook feels bleak — more like a slow fade than a comeback.
Major drinks producer Diageo (LSE: DGE), on the other hand, tells a different story. It’s the company behind leading brands like Guinness and Johnnie Walker.
The shares are down 54.3% in five years, hit by weak demand in key markets like Latin America, the US, and China.
While some analysts see this is cyclical due to economic tightening, it could also be the result of changing habits. Some signs point to younger people opting for healthier alternatives than alcohol.
Still, I think it has real recovery potential, and here’s why:
- Solid profitability: return on equity sits at 21.5%, showing it turns shareholder cash into profits efficiently.
- Attractive income: the latest dividend yield is 4.2%, covered comfortably by earnings and free cash flow.
- Cheap valuation: the price is 12.4 times forward earnings, so you’re not overpaying for growth prospects.
Still, there’s no guarantee and the risks are real. Spirits demand could stay soft if consumers keep pinching pennies, and currency swings can hit margins.
Still, with a solid portfolio of premium brands and an effective cost-savings initiative in place, I like its chances.
Long story short?
To me, Diageo looks undervalued, cash-rich, and dividend-safe. Recovery isn’t a sure thing, but if demand picks up, the upside could be big.
At the end of the day, seeking opportunity beats panicking — even if you don’t win. To minimise risk, spread your money across defensive shares, hold some bonds or cash, and think long-term.
Breeden’s right about risks, but downturns are where patient Brits build wealth. Don’t miss out — get ready instead.
