3 Bargain Basement Stocks: Diageo plc, Jimmy Choo PLC & Sports Direct International Plc

These 3 stocks offer superb value for money: Diageo plc (LON: DGE), Jimmy Choo PLC (LON: CHOO) and Sports Direct International Plc (LON: SPD)

| 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.

The best time to buy shares in any company is when investor sentiment is relatively weak. This enables the first part of the ‘buy low, sell high’ strategy to be fulfilled and, so long as there are no major fundamental problems with the business, it stacks the odds in the investor’s favour when it comes to long term capital gains.

With the fear surrounding China hurting investor sentiment in emerging market-focused stocks such as Diageo (LSE: DGE) and fashion brand Jimmy Choo (LSE: CHOO), both stocks offer excellent value for money. In fact, their share prices have fallen by 4% and 16% respectively in the last three months as the market fears a pullback in spending on luxury goods in China and across the developing world.

In Diageo’s case, it now trades on a price to earnings (P/E) ratio of 20.6. For a global consumer goods company with a range of top notch brands which command high levels of customer loyalty and in some cases are the dominant brand within their category, this appears to be a relatively cheap price to pay. That point is enforced by the fact that other consumer goods companies (often with less diversity or brand strength than Diageo) trade on significantly higher ratings, which indicates that Diageo’s P/E ratio could move significantly higher.

Similarly, Jimmy Choo has a price to earnings growth (PEG) ratio of only 0.8. With its potential to diversify the brand through moving into other fashion accessories such as clothing and fragrances, it could become a true lifestyle brand with huge cross-selling opportunities. For example, it has a relatively high degree of customer loyalty from purchasers of its shoes and this can be leveraged to promote new products in other spaces, while maintaining a relatively high price point due to its strong reputation within footwear.

And, with China still growing at around 7% per annum and transitioning towards a more consumer-focused economy, the potential for double-digit growth per annum in the coming years for both Diageo and Jimmy Choo is vast.

Meanwhile, Sports Direct (LSE: SPD) may be focused on a lower price point than Jimmy Choo or Diageo, but its profit growth potential is high. For example, it is expected to increase its bottom line by 12% this year and by a further 15% next year. After its share price has fallen by 14% in the last three months, it now trades on a PEG ratio of 0.9, which indicates that it could offer exceptional capital gains over the medium to long term.

Certainly, Sports Direct has prospered while the economy has been enduring a difficult period and shoppers have sought out the best value deals. However, Sports Direct appears to be well-placed to adapt to higher disposable incomes in real-terms and may seek to reposition itself as a lifestyle brand in the coming years, which may have a positive impact on the company’s margins and profitability.

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.

Peter Stephens owns shares of Jimmy Choo. The Motley Fool UK has recommended Sports Direct International. 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

Here’s how investing £250 a month could bag me over £10K in passive income annually

This Fool breaks down how she would go about building a passive income stream worth over £10,000 annually to enjoy…

Read more »

Young black colleagues high-fiving each other at work
Investing Articles

I’d snap this FTSE 250 stock up in a heartbeat for juicy returns and growth!

Sumayya Mansoor explains why this FTSE 250 property stock is firmly on her radar as she looks to buy stocks…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

1 dirt-cheap FTSE 100 stock investors should consider buying in June

The FTSE 100 is littered with bargains, according to our writer. She explains why investors should be taking a closer…

Read more »

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

The Legal & General share price has gone nowhere. Why?

The Legal & General share price has performed much worse than the the FTSE 100 over the past five years.…

Read more »

Investing Articles

Where will the BT share price go in the next 12 months? Here’s what the experts say

The BT share price has been sliding for years. But after the latest set of results, it looks like the…

Read more »

Investing Articles

Are National Grid shares now a brilliant bargain?

National Grid shares look exceptionally cheap following last week's selloff. Is now the time to buy the FTSE 100 firm…

Read more »

Happy young female stock-picker in a cafe
Investing Articles

Up more than 15%! — this small-cap company is delivering phenomenal dividend growth

There’s more good news in this company’s interim report and it may be shaping up as a decent dividend growth…

Read more »

Electric cars charging at a charging station
Investing Articles

Big news for Tesla stock investors!

Tesla has just quietly dropped a key target it set for itself just a few years ago. What does this…

Read more »