Toast Spectacular Returns With Diageo plc & Marston’s PLC!

Royston Wild explains why investors should expect tasty gains from Diageo plc (LON: DGE) and Marston’s PLC (LON: MARS).

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Today I am looking at two alcohol giants expected to deliver splendid shareholder returns.

Fermenting fantastic sales growth

I believe that pub operator Marston’s (LSE: MARS) is a terrific bet for those seeking solid earnings growth as drinker demand bubbles higher.

Shares were recently up 5% in Tuesday business after the firm released yet another positive trading update. Marston’s advised that sales hit record levels for the fourth consecutive year during the Yuletide period, with sales on Christmas Day breaching the £3m marker for the first time. Total like-for-like sales grew 3% in the 16 weeks to January 23rd, speeding up from 2.5% a year before.

As well as reaping the fruits of surging demand for its established and freshly-introduced ales, the brewer’s pub restructuring drive is also providing meaty rewards. And promisingly Marston’s plans to open another 20 pub-restaurants and five lodges in the current financial year alone.

The number crunchers expect Marston’s to enjoy a 6% earnings rise in the year to June 2016, resulting in a very attractive P/E rating of 12.7 times. And when you also factor in a market-bashing dividend yield of 4.2%, I believe the firm is a great bet for value-hungry growth seekers.

Ride the drinks juggernaut

Fears over the impact of emerging market cooling on drinkers’ spending power continues to hamper investor appetite for Diageo (LSE: DGE). On top of this, the drinks giant’s battle against adverse currency movements is also adding a further layer of worry for the market.

These concerns saw Diageo’s share price dribble 7% lower during the course of 2015 in oft-choppy trading. But I believe investors are missing a trick here as the company’s long-term profits potential remains strong, regardless of the prospect of any near-term revenue pressures.

Few companies can boast the terrific brand power enjoyed across Diageo’s product portfolio. Labels like Johnnie Walker whisky, Smirnoff vodka, Guinness stout and Baileys liquor gives the London firm market-leading positions in a plethora of beverage sub-segments.

And the power of these brands — helped by Diageo’s vast investment in marketing — helps the business to lift prices even in times of wavering consumer spending clout, providing the firm with terrific earnings visibility regardless of the wider economic climate.

On top of this, Diageo clearly sees the resplendent rewards on offer from developing regions and remains committed to bolstering its exposure to these territories. The company increased its stake in both Guinness Nigeria and Guinness Ghana during the autumn, while Diageo also acquired Mexico’s Tequila Don Julio and took control of South Africa’s United National Breweries in 2015.

The City expects Diageo to bounce from earnings declines of 7% in both 2014 and 2015 with a modest 1% earnings bounce in the 12 months to June 2016. Sure, a subsequent P/E rating of 21.3 times may appear a tad heady at face value. But I believe the quality of Diageo’s market-leading labels, not to mention expanding global presence, fully justifies this slight premium.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

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

More on Investing Articles

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »