Last week, FTSE shares ended on a down-note — just one of the many market setbacks we’ve seen over the past few years. And those reversals will keep on coming as sure as eggs are eggs.
But as well as being frustrating for shareholders, these dips often present investors with an opportunity to load up with stocks on the cheap. It’s the classic tactic employed by successful operators such as billionaire investor Warren Buffett. When news headlines get scary, some investors dump stocks. But Buffett often vacuums up the best ones on the cheap — and by the bucket full.
Quality at a fair price
He’s known for hunting out quality businesses with a decent runway of growth ahead. But he buys for the best valuation he can. And that often means waiting for dips, down-days and company-specific short-term setbacks.
I reckon we’re seeing a general market retrace right now. And it appears to have been kicked off by a more hawkish stance from the US Federal Reserve regarding interest rates to fight inflation. Although we never really know for sure what causes general market sentiment to decline. It’s only really useful for investors to note that it has. And that can lead to the opportunity to sniff out a bargain.
And one stock to buy without hesitation in this latest market sell-off is premium alcoholic beverage supplier Diageo (LSE: DGE). In January, I named the stock as the one I’d choose for 100% of my cash. But only if I could hypothetically buy the shares of just one company for my long-term portfolio.
In reality, buying only one is rarely a good idea. And most portfolios would benefit from at least some diversification between different names. But the exercise helped me pin down what really matters when choosing stocks.
And in the case of Diageo, I pointed to its long and stable financial record and its strong and enduring brands. But on top of that, there’s a runway for growth, an impressive record of dividend advancement and a solid balance sheet.
Poised and ready to pounce
However, even quality businesses can go on to make poor investments. Any enterprise can suffer operational setbacks from time to time. And Diageo’s brands may not prove to be as resilient as I believe them to be. Nevertheless, for me, the only point in question is the valuation. And that’s where last week’s market decline come in.
I’m on my haunches and watching Diageo like a tiger ready to pounce. The lower the share price goes, the more attractive the stock becomes for a long-term hold.
Meanwhile, last Friday, the company announced some progress with its drinks portfolio. It completed the acquisition of Don Papa Rum, a super-premium dark rum from the Philippines.
And the purchase is in line with Diageo’s strategy to acquire “high-growth brands with attractive margins that support premiumisation”. The new name will join an elite list in the company’s stable including Johnnie Walker, Crown Royal, J&B, Smirnoff, Cîroc, Ketel One, Captain Morgan, Baileys, Don Julio, Tanqueray and Guinness.
That’s an impressive line-up that keeps me interested in Diageo’s shares. And that’s especially true when the general market pulls back, such as right now.
