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One Footsie stock I’d buy, one I’d hold, and one I’d sell in January

Photo: Rept0n1x. Cropped. Licence: http://creativecommons.org/licenses/by-sa/3.0/

I’ve long argued that the star power of Diageo’s (LSE: DGE) labels like Johnnie Walker whisky and Captain Morgan rum makes the business one of the best growth selections out there.

Irrespective of wider economic pressures, the supreme pricing power of Diageo’s brands command customer loyalty like no others. And fuelled by rapidly-improving economic conditions in North America — by far the company’s largest single market — I reckon the firm can look forward to sales still rising in the months and years ahead.

And Diageo continues to invest vast sums in product marketing and development across the globe to stay at the front of the pack. Just last week the business rolled out its Smirnoff Spiked Sparkling Seltzer low-calorie drinks, latching onto surging demand for healthier alcoholic beverages.

While Diageo may deal on an elevated prospective P/E ratio of 20.9 times, I reckon a chirpy interim statement — currently slated for January 26 — could push the drinks ace’s share price higher again.

Hold on gold

The future is a lot less certain for precious metals producers such as Fresnillo (LSE: FRES) however, as buoyant risk appetite damages demand for so-called safe-haven assets.

There’s still plenty of uncertainty in the air that could fuel a fresh rally in gold and silver values in 2017, however. Indeed, the yellow metal broke back above $1,200 per ounce this week — the highest level since late November — as continued fogginess around the UK’s Brexit negotiations continues.

And this issue, along with other key geopolitical issues like general elections in Germany and France, as well as concerns over the approach of President-elect Donald Trump, could continue to support gold in 2017.

But on the other side of the coin, the likelihood of further Federal Reserve rate hikes this year could put the metals suite heavily under the cosh, as was the case during most of 2016.

A forward P/E ratio of 28.3 times for Fresnillo leaves little room, at least on paper, for a share price surge in the current climate. As such, I reckon it’s a good idea for holders of the commodities colossus to sit tight for the time being.

Shop around

Supermarket giant Morrisons (LSE: MRW) saw its share price gallop to three-year peaks this week after its Christmas trading statement busted analyst expectations.

The Bradford chain saw like-for-like sales leap 2.9% during the nine weeks to January 1, the best performance since 2010. Morrisons put the strong performance down to “improving the offer, becoming more competitive, and serving customers better,” as it continued the company’s recent recovery at the tills.

But the situation is set to become a lot more difficult as 2017 progresses. Rising inflation is likely to drive consumers’ demand for cheaper goods, bolstering the need for Morrisons to continue its path of earnings-crushing discounting. And the bottom line is likely to come under further pressure as sterling weakness ramps up supplier costs.

I believe the retailer’s long-term earnings outlook remains extremely risky, and that this isn’t reflected in Morrisons’ weighty forward multiple of 20.8 times.

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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.