Is Now The Time To Buy FTSE Laggards Diageo plc, British American Tobacco plc And Associated British Foods plc?

This could be a good time to buy quality businesses Diageo plc (LON:DGE), British American Tobacco plc (LON:BATS) and Associated British Foods plc (LON:ABF).

| 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.

The FTSE 100 has been on a roll since the back-end of last year, breaking through the 7,000 mark in March, and trading above that level as I write.

A number of quality, defensive companies haven’t participated in the great rally. Indeed, the shares of Diageo (LSE: DGE) (NYSE: DEO.US), British American Tobacco (LSE: BATS) (NYSE: BTI.US) and Associated British Foods (LSE: ABF) have all fallen over the last three and six months.

Inflation Is Coming

Inflation is out of control, and people are running scared. But right now there’s one thing we believe Investors should avoid doing at all costs… and that’s doing nothing. That’s why we’ve put together a special report that uncovers 3 of our top UK and US share ideas to try and best hedge against inflation… and better still, we’re giving it away completely FREE today!

Click here to claim your copy now!

Now could be a good time for long-term investors to pick up these out-of-favour Footsie laggards.


Even the best companies go through phases of lacklustre performance. Drinks giant Diageo is currently in such a phase, with tough trading conditions in emerging markets, subdued consumer demand in some developed markets, and exchange rates having an adverse impact on sales and profits to boot.

Diageo has been through similar periods in the past, but the ups and downs are mere hiccups on a long-term view. Twenty years ago, the shares were trading at around 450p and the company paid an annual dividend of 13.1p. Today, the shares are trading at around 1,800p and the last annual dividend was 51.7p.

Diageo’s valuation, using yield as a marker, is the same today — 2.9% — as it was 20 years ago. And I see every reason to think that the company can deliver a similarly superb return (a quadrupling of the share price and dividend payout) for investors over the next 20 years. Per capita alcohol consumption in emerging markets is only half that of the developed world, and Diageo’s stable of brands is stronger than ever.

British American Tobacco

Coincidentally, the shares of British American Tobacco (BAT) were also trading at around 450p two decades ago. Today, the price is around 3,650p — an eight-fold increase.

Like Diageo, BAT is currently feeling the impact of adverse exchange rates. The tobacco giant’s revenue last year was down 8%, but up 3% on a constant currency basis, while underlying earnings were down 4% but up 8% at constant currency. There’ll be times when exchange rates work in BAT’s favour. As the long-term performance shows, these things are merely puffs of smoke on the wind.

Tobacco companies seem to be perennially undervalued, and BAT’s trailing dividend yield of over 4% is comfortably above the FTSE 100’s 3.4%. I’m not sure that BAT can deliver the same return to investors in the next 20 years as it did in the last, but with growth in emerging markets, pricing power, new products and industry consolidation, I can’t see profits plateauing — let alone declining — in my lifetime.

Associated British Foods

The 20-year share performance of Associated British Foods (ABF) is the best of the lot, being a nine-fold increase from 320p to 2,940p. Despite its success, the company is probably one of the FTSE 100’s lesser-known names. ABF is a conglomerate with grocery, sugar, agriculture and ingredients businesses — and last, but certainly not least, Primark.

The hugely successful budget clothing chain is growing so fast that it accounts for over 50% of group profits and rising. Primark is expanding its proven format internationally, and has a long “growth runway” — there seems no reason why, over the next decade or two, it can’t become as big as H&M, which is currently three times the size of Primark by sales and seven times the size by space.

The sum-of-the-parts or break-up value of ABF and Primark’s growth prospects, suggest the shares may not be over-valued, even though the price-to-earnings ratio of pushing 30 is considered high by many investors.

More on Investing Articles

Tabletop model of a bear sat on desk in front of monitors showing stock charts
Investing Articles

3 reasons why the stock market is falling today

Jon Smith explains several factors that are contributing to the stock market falling today, and his thoughts on them.

Read more »

A pastel colored growing graph with rising rocket.
Investing Articles

2 stocks that are great long-term picks

As recession fears weigh on share prices, our author has found two stocks with strong long-term prospects. He’s looking at…

Read more »

Tanker coming in to dock in calm waters and a clear sunset
Investing Articles

2 lesser-known penny stocks to buy now and hold for 10 years!

I’m currently looking at penny stocks that could help my portfolio grow over the next 10 years. Despite recent volatility,…

Read more »

Black woman using loudspeaker to be heard
Investing Articles

Here’s 1 of the best stocks to buy for passive income

Jabran Khan delves deeper into one of the best stocks to buy for passive income, which is a FTSE 100…

Read more »

Playful senior couple in aprons dancing and smiling while preparing healthy dinner at home
Investing Articles

IAG shares are down 15% amid travel chaos! Is now the time to buy?

IAG shares have collapsed over the past month. Shareholders had hoped for a strong Q2. But maybe this represents a…

Read more »

Shot of a young Black woman doing some paperwork in a modern office
Investing Articles

UK shares: 1 dividend stock I own to combat inflation

This Fool is looking for quality UK shares to combat inflation through consistent and stable returns as well as growth…

Read more »

A young woman sitting on a couch looking at a book in a quiet library space.
Investing Articles

Here’s how I’m investing as stock market volatility soars!

2022 has seen an explosion in stock market volatility. But with the right approach I think ongoing choppiness could turbocharge…

Read more »

Business development to success and FTSE 100 250 350 growth concept.
Investing Articles

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

On my search for FTSE 100 shares to buy before the recovery, I have found two growth options that could…

Read more »