Why I’m Still Bullish On Diageo plc

Although the Indian economy is not performing as well as many investors had hoped, I still think Diageo plc (LON: DGE) has a great future there.

| 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.

Looking back at history, it has not been a smooth and trouble-free journey for any major economy across the world.

Indeed, countries such as the US, UK, Japan and other more developed economies have had major problems along the way. They have suffered from countless recessions, depressions, oil shocks and other major events along the road to economic prosperity.

So, the recent news surrounding India and the present difficulties that its economy is experiencing are not hugely surprising to me.

Indeed, recent news included the fact that the Indian rupee fell to a new record low as concerns surrounding the budget costs of new food subsidies added to wider concerns over the country’s overall economic outlook.

Furthermore, there are fears surrounding the impact of the Federal Reserve’s much-talked-about tapering and its potential effects upon emerging economies such as India. Such tapering, it is thought, could draw investors away from developing economies, such as India, and towards more developed economies, such as the US.

Such a move could put further pressure on India’s foreign exchange reserves, which have fallen by around $14bn over the last six months.

However, I think that the long-term outlook for India remains strong, especially for companies such as Diageo (LSE: DGE) (NYSE: DEO.US).

It has recently bought a large stake in India’s United Spirits and is hoping to build a much larger presence in what is the biggest consumer of whisky in the world.

Indeed, with Diageo owning various whisky brands such as Johnnie Walker, the idea is to gain a foothold in India and, as the country and its citizens become wealthier, Diageo will be in pole position to benefit from higher disposable incomes and sell more units of its higher margin, premium brands.

Certainly, the road to achieving that goal will not be a smooth one and there will be difficulties along the way. However, I believe that Diageo and its exposure to developing markets such as India could be a real benefit for investors.

Furthermore, shares are not hugely expensive despite the favourable long-term exposure that Diageo has. Shares trade on a price-to-earnings (P/E) ratio of 18.9, which is higher than the FTSE 100 P/E of 14.8 but lower than the beverages sector P/E of 20.4.

In addition, Diageo has impressive growth prospects, with earnings per share forecast to increase by 9% in the next year alone.

Of course, you may already hold Diageo or be looking for another idea that could give your portfolio a boost.

If you are, I would recommend you take a look at this exclusive report entitled The Motley Fool’s Top Growth Share.

It’s completely free and without obligation to view the report – click here to take a look. It could be well-worth checking out if, like me, you are a growth-seeking investor.

> Peter does not own shares in Diageo.

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.

More on Investing Articles

Affectionate Asian senior mother and daughter using smartphone together at home, smiling joyfully
Investing Articles

How I’d invest my first £20k ISA to target £4,900 a year from dividend shares

Looking for dividend shares in a new Stocks and Shares ISA, and want diversification too? Here's how I'd go about…

Read more »

Passive income text with pin graph chart on business table
Investing Articles

Yields of up to 7%! I’d consider boosting my income with these FTSE dividend stocks

The London market has some decent-looking dividend stocks right now, and I’m tempted by these two for growing income streams.

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

I’d put £20K in an ISA now to target a £1,900 monthly second income in future!

Christopher Ruane shares why he thinks a long-term approach to investing and careful selection of shares could help him build…

Read more »

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

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

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »