The Diageo (LSE: DGE) share price just keeps falling. When I bought the FTSE 100 spirits giant in January last year, shortly after its November 2023 profit warning, I thought I’d bagged it at a bargain price. Yet this was only the start of its woes.

Diageo shares have slumped 25% over the last 12 months to 2,168p. They’re now trading at one-, three- and five-year lows. Investors watching this relentless decline might wonder, how much worse can it get?

This should be one of the most solid UK stocks of them all. A global beast with a vast range of renowned brands including Guinness, Johnnie Walker, Don Julio, Bailey’s, Tanqueray and Smirnoff.

Can this FTSE 100 stock recover?

Yet it’s been battered by the global downturn, shifting consumer habits, foreign exchange rates and now Donald Trump’s trade tariffs. Bargain seekers have repeatedly come unstuck, just as I did.

The latest blow landed on 4 February when Diageo withdrew its medium-term guidance. The board blamed Trump’s mooted 25% tariffs on Mexican and Canadian imports, which threaten its tequila and Canadian whisky brands. Sceptics saw that as a handy excuse.

Diageo’s interim results revealed the damage, with net first-half sales down 0.6% to $10.9bn.  Operating profit slumped 4.9% to $3.16bn. Adverse foreign exchange movements didn’t help. Nor did a 132-basis point decline in margins to 30.3%.

CEO Debra Crew talked up market share gains and North American momentum, particularly in Don Julio and Crown Royal. It didn’t help. Down the shares went.

Tariffs won’t help but Diageo’s stretch go beyond Trump. Younger consumers, particularly Gen Z, are prioritising wellness over spirits. The risks inherent in the group’s shift into premium products have been punished by the cost-of-living crisis. Did Diageo forget the economy is cyclical?

Like many investors, I admired Diageo’s strong global footprint but emerging markets, which drove growth for years, have been volatile. Trouble in China’s hitting a number of my portfolio holdings, including this one.

The stock looks good value today too

I’ve considered cutting my losses. Diageo now trades at a relatively cheap (by its standards) 16.4 times earnings, with a dividend yield of 3.7%. However, uncertainty over tariffs, inflation, and Gen Z makes it difficult to pinpoint a bottom. 

Not everyone’s bearish. Citi reiterated its Buy rating on Diageo on 3 February and named it a core pick for 2025. It reckons the earnings downgrade cycle is over and Diageo’s trajectory is stabilising. If it’s right, today’s low valuation and attractive yield could make this a tempting entry point.

It’s not the only one who’s upbeat. The 21 analysts covering the stock have a median 12-month price target of 2,624p. That’s a potential 20% upside from here. We’ll see.

I’m reminding myself that buying out-of-favour stocks demands patience and strong nerves. I’m fortifying myself against further drops, in the hope of benefiting when the mood swings.

There’s no doubt that the moment I sell, the Diageo share price will fly. Always happens. So I’ll hang on and hope. But it’s a brave investor who considers buying it today.

The post As the Diageo share price hits a five-year low — just how bad can this get? appeared first on The Twelfth Magpie.

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• 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?

Harvey Jones has positions in Diageo Plc. The Motley Fool UK has recommended Diageo Plc. 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.

I have zeroed in on two shares for my portfolio. These are businesses that I think show growth potential and can generate cash even in tough economic conditions.

Grocer with sky-high dividends

At current levels, I think the Sainsbury (LSE:SBRY) share price is one of the best bargain options in the FTSE 100 right now. AT 209p, it is trading at a price-to-earnings ratio of 7.2 times and a lofty 6.2% yield.

Yes, the company has been in the news this week after last quarter’s sales dipped 4%. But this was in line with board expectations and the profit estimate for the year remains unchanged at between £630m and £690m. While this is lower than the 2021-22 profits of £730m, the company has a few plans up its sleeve. 

Given the rising raw material costs, the board will inject £500m over the next 24 months to keep product cost inflation at the minimum. I think this move will help the grocer gain footing on Tesco and grow its current 15% market share as inflation runs rampant.

Despite small margins, if profit estimates are met, the company expects to generate retail free cash flow of at least £500m in 2022-23, similar to last year’s £503m. I think the board will keep the payouts flat next year given tough economic conditions. But a healthy 5%+ yield looks likely, which I see as a positive.

However, the impact of inflation will hit this sector hard. Large grocers like Sainsbury will lose out to discount retailers, even if current prices are maintained. And this will inevitably eat away at Sainsbury’s revenue. 

But overall, this FTSE 100 firm looks well-set to navigate choppy waters. I am bullish on Sainsbury shares and will consider them for my portfolio in 2022  if signs of a market recovery become stronger. 

Alcohol heavyweight

Diageo (LSE:DGE) is a global alcohol aggregator that owns extremely popular brands like Smirnoff and Johnnie Walker. The FTSE 100 company has adopted an emerging market strategy, focusing on growing regions like India and China.

Down 14.8%, I think the Diageo share price is going through a rare lull given its steady rise over the last five years. And looking at the share price action over the last two decades, the company has been on an incredible upward trajectory. 

And I think this growth could continue given its fast expansion policy. Diageo recently purchased Vivanda, owner of a flavour matching technology. This will allow users to build a flavour profile and choose spirits based on suggestions. I think the company is adopting digital sales and shows a lot of growth potential.

Tough regulations and local competition will grow with expansion. And the company will have to deal with the rising tide of health-conscious youth who are choosing to go alcohol-free in record numbers. 

However, I think the company is well-placed to navigate this given its size, range, and future plans. This FTSE 100 share is not a bargain on paper at 3,525p, but I think the company offers a lot of value and growth. This is why I will wait for a drop in share price before investing.

The post 2 top FTSE 100 shares to buy before a new bull market 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?

Suraj Radhakrishnan has no position in any of the shares mentioned. The Motley Fool UK has recommended Diageo and Sainsbury (J). 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.

In general, UK shares have outperformed other global stocks this year. The FTSE 100 has returned around 2% over the past year, while the S&P 500 has sunk over 11%. This is mainly due to the abundance of oil and mining stocks in the Footsie, which have dealt with inflationary pressures well. However, this does not mean that there are no beaten-down UK stocks. Here are two I recently bought for their long-term potential. 

A beaten-down travel stock 

As consumers were forced to stay at home, the National Express (LSE: NEX) share price plummeted to multi-year lows. The past year has not been any prettier, with the company’s share price sinking 25%, far underperforming other UK shares. This has been due to factors such as rising fuel costs, wage inflation, and a shortage of US drivers. These factors are expected to increase costs, placing additional pressure on profit margins. However, I believe that the sell-off has now been overdone. 

Firstly, the company is recovering well. For example, in 2022, the group expects full-year revenues of around £2.7bn, which is in line with 2019 levels. It is also over 24% higher than 2021 revenues. It also expects to reinstate its dividend in respect of the 2022 results. This is a factor I think could boost the National Express share price. It also shows management’s confidence in the firm’s prospects. 

I am also not overly worried about the recent rise in oil prices. This is because the company has fully hedged oil throughout 2022 and 65% for 2023, which should lead to significant cost savings. With the price of fuel soaring, this may also drive consumers into using more public transport. Therefore, I have recently added more National Express shares to my portfolio and will continue to do so while it is beaten down. 

Top-quality UK share 

Diageo (LSE: DGE) is recognised as one of the most robust UK shares, delivering a return of over 50% in the past five years. However, over the past year, it has stayed broadly flat and in the past six months it has sunk 13%. Yesterday, the Diageo share price sunk further, as Deutsche Bank put a sell rating on the shares. It also gave a price target of 3,230p, implying an 8% downside. In particular, the investment bank noted that consumer spending may be put under pressure. 

However, I remain confident in the future for the group. For one, it owns a drinks portfolio of over 200 brands, including Guinness, Don Julio, and Captain Morgan. These have obtained significant amounts of brand loyalty, meaning that Diageo should continue to possess significant pricing power, helping to offset inflationary pressures. This enabled the group to increase reported FY2022 profits by 22.5% to £2.7bn. 

Therefore, I am willing to ignore the recent sell rating by Deutsche and buy more Diageo shares. The company’s quality is far too great for me to ignore and has many defensive qualities, which is ideal in the case of a recession. 

The post 2 beaten-down UK shares I just bought in a heartbeat 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?

Stuart Blair owns shares in Diageo and National Express. 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.

The drinks giant 

In the past five years, the Diageo share price has risen an astounding 80%. This can be compared to the broader FTSE 100 return of just over 7%. This outperformance has been driven by the company’s record of shrewd acquisitions, which has helped boost profits over the years. As a result of the rising profits, Diageo’s dividend and share buyback programmes have also increased, benefiting shareholders. 

Things are going well at the moment, and Diageo is near its all-time high, sitting at just below 4,000p. This is partly due to recent strong half-year results, with operating profits increasing 22.5% to £2.7bn. Operating margins also increased by 190 basis points, demonstrating that the firm has dealt well with inflationary pressures. There is hope that profits can continue to increase too. 

There are some risks, however. For example, the Russia-Ukraine conflict has meant that the group has paused exports to Russia and the Russian division has suspended manufacturing its beers. Although Diageo’s business in Russia contributes less than 1% of operating profits in the half-year results, this is still not good news.

Further, a price-to-earnings ratio of over 20, which is now larger than ‘growth stocks’ Netflix and Meta, demonstrates that further growth is expected. This means that any slip-up will be heavily punished. 

Despite these risks, I still feel that Diageo can continue to outperform the FTSE 100, albeit to a lesser extent than in the past five years. This is due to its excellent quality. Therefore, I’m not selling the Diageo shares in my portfolio. 

The second-largest FTSE 100 stock

After rising over 130% in the past five years, AstraZeneca (LSE: AZN) has established itself as the second-largest FTSE 100 stock, trailing only Shell. This has been achieved from a history of rising revenues and profits.

Recent developments have also been positive. For example, in the latest full-year trading update, revenues were able to increase 41% year-on-year to over $37bn, and core earnings per share increased from $4.02 to $5.29. Reported EPS was far lower ($0.08), due to the acquisition of Alexion and restructuring charges during the year. As these are short term, this is not overly worrying to me, however.  

Alongside these results, AZN also announced that five of its medicines were “crossing blockbuster thresholds”, showing industry-leading research and development productivity. The drugs Evisheld and Tezspire also received approval, giving hope to the company for 2022. 

There are a few problems, however. Firstly, revenues from its vaccine are starting to diminish. This means that revenue growth is likely to be far slower from now. Secondly, AZN also trades at a price-to-earnings ratio of over 20, meaning that growth is expected. Pharma is a very volatile industry, so I’m not convinced the company can live up to expectations. Therefore, this is a FTSE 100 stock I won’t be buying just yet, due to its expensive valuation. 

The post 2 top FTSE 100 stocks that are outperforming the market appeared first on The Twelfth Magpie.

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• Has the turnaround finally started for Diageo shares?
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Stuart Blair owns shares in Diageo. 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.

An airline stock ready to return to the skies

International Consolidated Airlines Group (LSE:IAG) experienced considerable turbulence during the pandemic. The IAG share price took a journey from 668p in January 2020 to penny stock levels, before eventually arriving at 140p today.

The outlook for IAG shares appears rosy to me, with the company likely to benefit from continued relaxations in travel restrictions. According to IATA, 38 of the world’s top 50 travel markets are now open to vaccinated travellers without quarantine — up from 28 just a month ago.

Indeed, this summer, the airline aims to fill 85%-90% of its 2019 capacity. CEO Luis Gallego foresees “significant profits” for 2022. This would mark a positive change in IAG’s fortunes. Last year, the company only managed to cut its pre-tax losses (from £7.8bn to £3.5bn).

At present, I view IAG as one of the cheapest FTSE 100 stocks. Granted, the emergence of a concerning new Covid-19 variant or escalating conflict in Ukraine could derail this hypothesis. Nonetheless, supported by improving financials and a recovering travel market, IAG stock looks like a good long-term buy for me.

A FTSE 100 dividend stock

Asset manager and insurer M&G (LSE:MNG) has one of the highest dividend yields of any FTSE 100 stock at 8.25%. Since it demerged from Prudential in 2019, M&G has delivered strong pre-tax operating profits, namely £788m in 2020 and £721m in 2021.

Other recent achievements include generating capital of £2.8bn in two years and bringing the total value of assets under management to £370bn.

If M&G maintains this performance, I see potential for capital growth for shareholders, in addition to passive income. In my view, this combination makes it a good FTSE 100 stock to beat inflation — currently running at 6.2%.

The firm is not focused on growing its insurance division, which acts as a cash flow bedrock for the business. This could undermine the company’s defensive credentials over time, but I still see value in the M&G share price and bumper dividends.

A Footsie share that consistently beats the index

Drinks giant Diageo (LSE:DGE) has been one of the best FTSE 100 stocks to own over the past five years. Beyond its index-beating returns, Diageo offers investors passive income from its current 2% dividend yield as a bonus.

Diageo delivered an increase in net sales from £11.75bn to £12.73bn for 2021. The company also boosted operating profit to £3.73bn – a 74.6% annual improvement.

Underpinned by intellectual property in an enviable list of brands from Guinness to Smirnoff and a free cash flow in excess of £3bn, the Diageo share price seems to go from strength to strength.

As consumers become more health conscious and possibly reduce their alcohol consumption, there are potential headwinds for Diageo stock. I would still buy it at present, however. My reading of the company’s financials is that demand looks robust.

The post 3 cheap FTSE 100 stocks I’d buy with a spare £1,000 appeared first on The Twelfth Magpie.

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• Here’s how I’m targeting £9,945 a year in second income from this overlooked FTSE gem
• Newsflash: the Diageo share price just climbed!
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• How has M&G become one of the FTSE 100’s hottest dividend stocks? 5 reasons..!
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Charlie Carman does not own shares in any of the companies mentioned. The Motley Fool UK has recommended Diageo and Prudential. 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.

Dividend stocks

In times of turmoil, I often look to boost my passive income, especially as lower share prices often equate to higher yields. Of course, this is provided that the company does not cut its dividend. But to protect myself against this eventuality, I always make sure that any dividend stocks I invest in have large dividend cover.

Legal & General (LSE: LGEN) is an excellent example of a FTSE 100 stock that I’m buying right now. Indeed, the insurance company has seen consistent dividend growth, and has recently raised its full-year dividend by 5%, to a figure of 18.45p per share. At its current share price, this equates to a yield of 7%. This is one of the highest out of all FTSE 100 stocks. Further, the company is currently retaining 50% of its earnings to fuel further growth. This ensures that the dividend is sustainable, and there is also a focus on boosting profits.

With a price-to-earnings ratio of around seven, I also feel that the company is far too cheap. This is especially true as the company continues to see profit growth. As such, despite the risks of a stock market crash, which would have a disproportionately large impact on L&G shares due to its large asset management sector, I’m still buying.  

Another FTSE 100 stock with large dividends

Aviva is another insurance company I’m buying. In fact, due to several divestments last year, it expects to return around £4.75bn. This includes a large £1bn share buyback programme and a 40% increase in the dividend this year to around 31.5p per share. This equates to a yield of around 7.5%. Such a high yield indicates that Aviva shares may be too cheap, especially as there is no doubt that it’s currently sustainable. As such, even though a suffering economy would cause great turmoil for Aviva, this is another dirt-cheap FTSE 100 stock I’ll continue to add to my portfolio. 

Buy quality stocks

The recent dip in the FTSE 1oo also offers a great time to buy quality stocks, which have previously been expensive. Diageo (LSE: DGE) is a good example. The drinks giant, with a giant portfolio of 200+ brands, has always outperformed the FTSE 100, yet year-to-date, it’s fallen around 16%. This is partly because the Smirnoff vodka maker has paused exports to both Ukraine and Russia, which will inevitably have an impact on revenues.

It may not be ‘dirt-cheap’ now, but it is cheap and its quality is not in doubt. In the recent half-year results, it announced a 24.7% year-on-year profit rise to £2.7bn. As it continues to expand its portfolio, and grow sales in developing regions, I’m confident it can continue to see steady growth over the next few years. With a historically low price-to-earnings ratio of around 20, I also feel it’s too cheap. This is another stock I’ll continue to add to my portfolio.  

The post I’m buying dirt-cheap FTSE 100 stocks and holding them for the long term appeared first on The Twelfth Magpie.

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Stuart Blair owns shares in Aviva, Diageo and Legal & General. 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 drinks giant

Diageo (LSE: DGE) has always been one of my favourite UK shares, with its reputation for excellence and significant brand loyalty. Indeed, Diageo owns over 200 different alcoholic brands, such as Guinness, Gordon’s, and Johnnie Walker. Due to the prominence of these brands, Diageo can rely on recurring sales, alongside some organic growth.

In fact, in the recent FY22 half-year results, Diageo managed to record net sales of £8bn, representing organic growth of around 20%. Organic operating profits were also to grow 24.7% to £2.7bn. Considering the worries surrounding cost inflation and supply chain constraints, these were incredibly strong results. It also allowed the company to increase the interim dividend by 5%, giving it a yield of around 2%.

There are some risks with the shares, however. For example, cost inflation is likely to increase capital expenditures, and this may strain profit margins. Supply chain constraints may also limit the company’s ability to meet demand for its products. Nonetheless, I remain confident in the future. Indeed, over the medium term, from FY23 to FY25, it expects organic operating profits to grow sustainably within a range of 6% to 9%. The company’s share buyback programme, where it plans to return £4.5bn to shareholders, is also likely to have positive effects on the Diageo share price. For these reasons, Diageo is a ‘no-brainer’ buy for me.

A lesser-known UK share

In contrast to Diageo, Pan African Resources (LSE: PAF) doesn’t receive much attention. Despite this, the gold miner is performing excellently. In fact, in the most recent full year trading update, it recorded profits after tax of $74.7m, which is a 69% increase from the year before. It also sports a dividend yield of over 5%, far higher than most other UK shares.

Things are also going extremely well in the latest half-year. In fact, the company managed to produce 108,000 ounces of gold in the six months ending December 2021, which is a record amount for the company. It also exceeded previous guidance of 105,000 ounces. Further, the company announced a further reduction in net debt, a factor which may allow further increases in the dividend.

Despite this, PAF is extremely reliant on the price of gold, which is entirely outside of its control. This is a risk that faces the company. But that’s not stopping me from buying. Due to the current inflation rates, I feel that gold has further to rise. As a top-class gold miner, PAF is, therefore, another UK share I’d buy with £1,000.

The post 2 ‘no-brainer’ UK shares to buy with £1,000 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?

Stuart Blair owns shares in Diageo and Pan African Resources. 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.