Multinational drinks powerhouse Diageo (LSE: DGE) has had a strong run over the past 12 months, rising 32.5%. This growth was in the wake of the March 2020 stock market crash and placed Diageo as a standout FTSE 100 stock for the year.

Currently, Diageo shares are trading at 3,538p, dipping slightly from their August highs of over 3,600p. So, is now a good time to add Diageo stock to my portfolio? Let’s take a closer look.

Promising results

The 2021 Annual Report released last month contained some very encouraging metrics. Operating profit was up 75% to £3.7bn and net sales rose 8% to £12.7bn. Organic profit was also up 17.7%, outperforming the 14% target set at the start of the year.

2020 was a tough year for most businesses, so these numbers are to be expected year-on-year. However, in the last six months of 2020, organic sales rose 1%. This highlights to me that the firm was able to deliver positive results in the face of huge macroeconomic uncertainty, which is great news for Diageo stock, I feel.

In addition to this, it made a number of interesting acquisitions over the past year. Notable acquisitions included Loyal 9 and Aviation Gin. Capitalising on up-and-coming brands like this is essential if it wants to remain a frontrunner in the industry.

Another encouraging point was that more broadly, alcohol e-commerce sales were up 45%. Diageo has been able to capitalise on this with online sales rising 70% in the past year. This expansion has been in key markets in the UK, Germany, and China, all massive alcohol markets. A growing business like this is good news for Diageo stock.

Diageo stock value

Diageo stock currently trades on a price-to-sales (P/S) ratio of 6.48. Comparing this to competitors Heineken and Carlsberg that trade on 2.95 and 0.39 P/S ratios respectively, it begs the question of whether the current Diageo share price is too high? I thought it could be when I last covered the stock, however, it has since risen over 200p. Although the price has risen, the continuously encouraging results lead me to believe the stock could push higher. Also, perhaps investors don’t mind the fact that Diageo stock is overvalued on paper. I’m starting to feel that way myself due to its strong performance. If this is the case it could keep pushing higher.

Long-term outlook

Here at The Motley Fool UK, we like to think long term. Looking at Diageo stock, I believe it could be a good long-term investment for my portfolio.

Diageo saw a strong rebound in 2021 and the back end of 2020. The firm’s open attitude towards acquisition is also attractive to me. The existing portfolio of products Diageo already has also gives me long-term confidence. People are going to be drinking household beverage names such as Smirnoff and Baileys for years to come.

Finally, the lofty valuation seems to not be worrying investors. All things considered, I like the look of Diageo stock and would consider adding it to my portfolio today.

The post Should I add Diageo stock to my portfolio? appeared first on The Twelfth Magpie.

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• Is it finally game on for the Diageo share price?

Dylan Hood has no position in any shares mentioned above. The Motley Fool UK has recommended Diageo. 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.

With Diageo shares up by 17.8% year-to-date, investor confidence in the company has quickly recovered from the initial stages of the pandemic. In fact, at approximately 3,300p per share, the company is trading above where it was prior to the pandemic, at around 3,200p.

Resilience during pandemic

In its first half of 2021 results, Diageo managed to increase net sales of its alcohol beverage products by 0.9%. The company noted that the increase in sales was a result of people buying the products for consumption at home. The company’s sales grew by 12% in North America and by 10% in the UK.

This meant that net profit was only down by 15.3% year-on-year, and was still healthy at £1.58bn.

Shortly after the first half of 2021 results, Diageo announced it would return capital to shareholders. The company announced that it had decided to increase its dividend by 2%. All of this resulted in Diageo shares rising by 9.95% in the last three months.

Looking to the future

As bars and restaurants open up across Europe, could demand for the company’s products positively impact share price further? Looking ahead to full-year 2021 results, Diageo announced that it expects organic operating profit growth to increase by at least 14%. The company stated the increase in profit will arrive from the economic re-opening in Europe and a recovery in its Africa, Asia Pacific, and Latin American markets.

This outlook was a driver behind the decision to repurchase shares. By the end of the fiscal year 2022, the company plans to repurchase £1bn shares and immediately cancel them. Another promising sign for investors was Diageo stating that e-commerce rose to 5% of group sales, up from 2% prior to the pandemic.

The risks

The principal risk to shareholders of Diageo is similar to that most businesses currently face – the course the pandemic will take. Further widespread lockdowns would again reduce profit, which could weigh on the share price.

Broader than this is the question of how much further growth can Diageo squeeze from its market. The overall beverage industry has experienced consolidation through acquisitions. At present, half of the world’s top-selling spirit brands are owned by Pernod Ricard, Baijiu, and Diageo itself. This makes further growth through acquisition tricky.

To answer my original question, I can’t see Diageo shares rising significantly as pandemic restrictions ease further. The company’s share price recovered from the pandemic hit quickly. This was followed by Diageo broadcasting its positive outlook through the share buyback. I believe this has already been accounted for in its current share price, which is fairly valued, in my opinion.

The fact that Diageo shares did so well during the pandemic is a sign of an overall strong business. Rather than a reopening play, I would look to Diageo when adding a steady, low-growth acquisition to my portfolio.

The post Diageo shares rise but could this reopening play make further gains? appeared first on The Twelfth Magpie.

More reading

• Newsflash: the Diageo share price just climbed!
• Which British dividend shares could supercharge a passive income portfolio in 2026?
• Has the turnaround finally started for Diageo shares?
• How much longer can the Diageo share price stay this low?
• Is it finally game on for the Diageo share price?

Ben Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has recommended Diageo. 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.

A defensive bargain?

Premier Foods (LSE: PFD) might perhaps seem an unexciting prospect, but it did get a few hearts beating in March when a takeover approach from McCormick & Company sent the shares soaring. It didn’t come off and the price fell again, but Premier Foods shares are still up 48% since the bid, to 46.8p.

Today the company told us that Q1 sales were up 1.9% with the fourth consecutive quarter of sales growth. Worried about Brexit? Chief executive Gavin Darby reckons the firm’s “immediate financial exposure is expected to be limited“.

Expectations for the full year are unchanged, so at this stage we’re looking at a welcome 5% EPS rise, putting the shares on a forward P/E of just 5.5. Year-end net debt stood at £534m, which goes some way to explaining the apparent undervaluation of the company with a market cap of £385m, but I think we’re still looking at a decent long-term investment.

Precious gold and silver

There’s been a bit of a flight towards gold and silver of late, and today’s high prices for those metals have given Hochschild Mining (LSE: HOC) a boost. Production volumes in its first six months came in ahead of expectations, with 8.2m ounces of silver and 118,100 ounces of gold unearthed in the half.

Debt fell from $366m to $280m during the period, with cash up from $84m to $103m, and full-year production guidance was raised. Chief executive Ignacio Bustamante described the first half as “pivotal in Hochschild’s recent history,” so should we buy the shares?

Priced at 213p, we’re looking at a P/E of 43 this year as the company swings back into positive EPS, and that would drop to around 16.5 if the 160% rise in EPS forecast for 2017 comes off. But it’s based on today’s precious metals prices staying with us, and with the global economic outlook improving and the attractiveness of shares getting better, I think that’s a very risky assumption. Not for me.

Depressed by Brexit?

Shares in Britvic (LSE: BVIC) have slumped by 13% so far in 2016, to 619p, but since the end of June they’ve been staging a bit of a comeback. Did today’s Q3 update bring any cheer for hard-pressed investors?

Reported revenue came in 5.3% ahead of the same period last year, at £346.3m (though that translated to a 0.7% drop in organic revenue to £326.5m), as chief executive Simon Litherland told us the quarter’s performance was better than the first half’s. There’s certainly a Brexit risk here, with Mr Litherland pointing to higher input costs as a result of the fall in Sterling.

The share price weakness has dropped Britivic’s forward P/E to 13, and to 12.4 on 2017 forecasts, and has boosted the predicted dividend yields to around 4%. There are some risks, which will become clearer as Brexit progresses. But with those dividends looking well covered, I see the shares as good value.

The post Do today’s updates turn these three shares into cracking buys? appeared first on The Twelfth Magpie.

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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has recommended Britvic. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Certainly not me, as Barclays seemed to be bounding back to strength and a strategy of focusing on its strong retail operation looked set to bear fruit. The City’s analysts have been predicting good things, and today we have an EPS rise of 24% expected for the year just ended, followed by a further 21% for 2016.

That puts the shares on a forward P/E for this year of just seven on today’s 180p share price! Dividends are recovering too, with a 2016 yield of 4.6% on the cards, and the company even has a PEG ratio of just 0.3 — that’s way better than expected even for small cap growth opportunities!

The big fear is probably of possible future penalties for historical transgressions, and there have been hints that the authorities still plan to come down hard. But in the context of Barclays’ fundamental strength, what I see here is a panic-driven over-reaction — and a great investment bargain.

I see no building slump?

Construction services firm Carillion (LSE: CLLN) showed up on my radar as a potential dividend stock, with a 6.7% yield currently expected for the year just ended, on shares priced at 270p, rising to 6.9% this year — and those dividends would be covered 1.9 times by earnings per share.

Carillion sounded caution in its pre-close update, while we await full-year results on 3 March, but its contracts pipeline sounded healthy and the firm reckons it’s set to meet its guidance.

So how come the shares hit a 52-week low of 265p and today trade just a little higher at 271p? It beats me, but a forward P/E of 7.8 for the coming year coupled with dividend yields in excess of 6% have made me add Carillion to my watchlist for my next share purchase.

Soft drinks crash

Shares in beverages maker AG Barr (LSE: BAG) have slumped by 25% in little more than a year, to 518p — up a little from a low of 504p last week. In December, the firm told us it expected to meet its full-year guidance for the year to January 2016, so that’s good news for shareholders.

But the problem is, although this is a strong company with decent forecasts and surely a good future, I think the price slide has been fully justified — because the shares were simply overvalued a year ago.

Even after the fall, we’re still looking at a prospective P/E for the current year of 18, dropping only as far as 17 in the following year. On top of that, dividend yields are hardly sparkling at around 2.6%.

AG Barr looks like one of those safety stocks that people rush to when they’re frightened, but the time is now surely ripe for the courageous — who, I reckon, would do well to invest in Barclays and Carillion instead.

The post 3 Unmissable Bear-Market Bargains? Barclays PLC, Carillion plc, A.G. Barr plc appeared first on The Twelfth Magpie.

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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has recommended Barclays. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

The big questions are, will the company outperform again in 2016? Or have the shares run ahead of themselves?

A lurch into profits

Fevertree is no ‘jam tomorrow’ speculative share. There’s an understandable reason for the toe-curling valuation we see today. The founders’ vision was to create a premium brand of carbonated mixers for alcoholic spirits to capitalise on what they saw as an established trend towards consumption of premium products. In this case, Fevertree aimed to benefit from the rise of premium spirits.

It worked. Since its launch in 2005 the company has grown and 2015 was the year that the success of its execution really showed up in pre-tax profits. City analysts forecast those profits will be up around 287% by the time we all set light to our Christmas puds at the end of the year.

Executing well

Now, it would have been much more helpful if I had written this article in January rather than December, before this share popped its cork. However, I don’t want to let one omission lead me to another bad decision. After all, it would be easy to dismiss Fevertree on grounds of its valuation – the forward price-to-earnings (P/E) ratio sits at about 45 for 2016. That’s high. But I think the firm is worth keeping an eye on because the business model is compelling and growth could have much further to go.

Fevertree’s high quality mixers often cost more than the spirits they mix, but customers ask for them by name by some accounts. The firm has carved itself a seemingly unassailable niche in the market and now refers to itself as the world’s leading supplier of premium carbonated mixers for alcoholic spirits by retail sales value. That’s quite an achievement for a business that started up just 10 years ago. Today, Fevertree distributes to over 50 countries worldwide. It’s executing well and deserves further research and a place on my watch list.

Commodity prices: weak or just normalising?

Fevertree is a racy, highly rated share. So how about a big-cap stalwart like Royal Dutch Shell (LSE: RDSB)? 2015 hasn’t been quite as kind to Shell. It started the year with a share price of 2225p, which compares to today’s 1508p – a 32% drop. Ouch! Maybe the venerable old firm isn’t the staid stalwart that I’m looking for to shore up the downside in my portfolio after all.

Most of Shell’s challenges boil down to weak commodity prices. But are they truly weak, or is the price of oil and other resources returning to a more stable ‘normal’ range? I think that might be the case. That’s why I’m inclined to hold fire for a while longer before investing in any resource shares such as Shell and its oil-producing peers. Recent events for oil companies, banks and supermarkets underline the risk inherent in all shares – even those of big companies. That’s why I don’t think it’s such a bad idea to consider proven winners with strong underlying businesses such as Fevertree, even when the valuation froths so much that the bubbles get up your nose!

The post Can Fevertree Drinks plc Beat Royal Dutch Shell Plc In 2016? appeared first on The Twelfth Magpie.

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Kevin Godbold has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

But I actually like Christmas. After all, you can never listen to Fairytale of New York too many times. It’s a great time to have a break from work and cosy up to the family on those cold December nights. And, to me, any excuse for a party – and a drink – is a good excuse.

Diageo: the gift of Christmas

From pagan festivals through to the modern, commercialised celebrations of today, late December has always been the right occasion for a booze-up. Which means that companies like Diageo (LSE: DGE) are set to rake in the cash at this time of year.

Diageo’s strengths are in beer and spirits like whisky and vodka, with brands including Guinness, Tanqueray and Smirnoff. And while many companies have suffered since the turn of the century, this firm’s shares have been on the up. In fact, it has been one of the best FTSE 100 investments of the past 15 years.

But wait – the momentum that drove the shares up a decade ago seems to have slowed. Since early 2013 the share price has been treading water and hasn’t been able to sustain a break above 2000p. Why is that?

While Diageo is a leading player in alcoholic beverages in Europe and North America, you could argue that its brands have pretty much reached saturation point in these markets. The rapid growth in earnings and share price has thus levelled off, even though it’s one of a decreasing number of FTSE 100 companies that has robustly healthy balance sheet year in and year out.

The next growth spurt

Diageo still churns out fat profits year after year and that makes it one of the FTSE 100’s most consistent performers. This is a highly cash generative business that can be relied to produce a tidy dividend. And the current P/E ratio of 19.45, and income of 2.83% seems, if not cheap, at least fairly valued.

The question people will ask is where Diageo’s next spurt of growth is going to come from. And the obvious answer is emerging markets. Sales of spirits in countries such as China, India and Vietnam are currently very low, and the growing middle classes are expected to go on a spending spree, even with government clampdowns on conspicuous consumption in the key China market. Branded consumer products such as those sold by Diageo are likely to do well.

That’s why I think it remains a good long-term buy. The flagship brands it sell wills be popular with the same middle class consumers that buy into other well-known western brands such as iPhone, Burberry and Persil.

It’s been difficult to find companies in the stock market that are still strongly profitable, and also have the promise of growth into the future. I think Diageo ticks both those boxes and should be one consistent performer to tuck away in your portfolio.

The post Is Diageo plc Set To Surge, And Stick, Above 2000p Next Year? appeared first on The Twelfth Magpie.

More reading

• Newsflash: the Diageo share price just climbed!
• Which British dividend shares could supercharge a passive income portfolio in 2026?
• Has the turnaround finally started for Diageo shares?
• How much longer can the Diageo share price stay this low?
• Is it finally game on for the Diageo share price?

Prabhat Sakya has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.