The stock market has been hit from all sides recently, and no matter how it might make you feel, alcohol is not immune from the impact. FTSE 100 giant Diageo (LSE: DGE), for example, took a massive hit to its share price in March, crashing into a 52-week low of 2,139p per share. Its 52-week high was 3,369p.
Despite this, both myself and Edward Sheldon have faith in Diageo’s long-term prospects. It is an industry leader that operates in more than 180 countries and owns more than 200 brands, including Tanqueray, Guinness and Johnnie Walker. This makes the company a cornerstone of the alcohol industry, and possibly one of the smartest FTSE 100 investments out there.
A Lot Of Long-Term Positivity
One of the main things drawing me towards Diageo is the confidence of those in the know. Recently, its CFO, Kathryn Mikells, bought more shares in the company. Considering she has access to a lot of insider information, this is almost certainly a good sign.
On top of that, the company’s CEO, Ivan Menezes, recently gave the upbeat suggestion that he is “pleased with the resilient performance of our business in the current challenging operating environment, and encouraged by our progress.”
In the same press release, he explained that Diageo was recovering particularly well in the US, surpassing even the company’s own expectations. Off-trade (supermarkets, etc.) retailers are re-stocking Diageo brands at healthy volumes, while most on-trade (bars, etc.) venues have re-opened, albeit with limited capacity.
As a huge, profitable FTSE 100 company, Diageo is also in a position to keep expanding. This means that it can both continue to diversify its portfolio and purchase high-growth challenger brands and competitors. In fact, a deal to acquire both Aviation American Gin (part-owned by Ryan Reynolds) and its parent company, Davos Brands, was finalised on September 30th.
The UK experienced its gin boom earlier on in the 2000s (and Diageo took advantage of it), but North America’s gin market is in the middle of a rapid growth. With Aviation American Gin reporting an increase in sales of more than 100% in 2019, it seems that Diageo’s acquisition came at the perfect time for growth.
Some Short-Term Issues
Covid-19 still poses a huge threat to the stock market, placing Diageo on the same rocky road that just about every other FTSE 100 company is on. However, while a second lockdown would cause its share price to dip, I don’t think it would have a dramatic lasting impact.
Still, this doesn’t make Diageo risk-free. Its profit margins are distinctly lower in 2020 than 2019, and it has been open about the severe impact that Covid-19 has had on its presence in the travel sector. The fact that Diageo operates in so many countries helps with stability, but poor performance in just one or two countries could have a heavy impact on its share price, no matter how well it was doing elsewhere.
Having said that, these short-term issues aren’t massively off-putting. The fact that Diageo is a FTSE 100 company trading at an enticingly cheap price with good future prospects is almost too exciting to ignore. Andy Ross agrees that Diageo should recover well in 2021, and I think its continued growth will provide healthy long-term profits.
