Nobody knows when the next bull market will get going. But history has shown repeatedly that it’s just a matter of time before the tide turns and investors start piling into stocks again. So, getting ahead of the curve and deciding which stocks to buy now can be a very lucrative move.
With that in mind, here are two high-quality FTSE 100 shares that I’ve got on my buy list.
At 52-week lows
The Diageo (LSE: DGE) share price surged for a decade up until 2019. However, since hitting £35 in August of that year, the stock has struggled to push on. Today, it languishes at a 52-week low of £32.50.
Now, there have been rising cash dividends from the drinks giant to keep shareholders’ spirits up, but the performance has still been disappointing. And I’m speaking from experience here as a long-term shareholder.
Why are investors cautious about Diageo shares?
Well, one concern might be the growing evidence of a change in consumer taste regarding alcohol, especially among younger generations in developed economies.
In response to this, management is doubling down on its non-alcoholic beverage offerings. For example, Guinness, one of the company’s flagship brands, is aiming to triple production of its non-alcoholic stout. This Guinness 0.0 offering is already very popular in the US and the Middle East.
Additionally, supermarket Waitrose is reportedly working with Diageo to create dedicated zones in stores for low and alcohol-free drinks. Sales of such beverages grew 20% at Waitrose last year. Growth in this new category could offset weakening sales of traditional alcohol for Diageo.
Either way, though, I still think its premium brands, including Don Julio tequila and Johnnie Walker Scotch, have enormous growth potential in international markets like China where disposable incomes are rising fast.
With the shares now trading on a reasonable price-to-earnings (P/E) ratio of 19, I’m ready for a top-up of Diageo stock before the end of summer.
Investing with the best
My second FTSE 100 stock to buy is investment trust Pershing Square Holdings (LSE: PSH). This gives investors exposure to the hedge fund run by Wall Street guru Bill Ackman.
He is known for moving very fast when he sees an investment opportunity. For example, in early 2020, his $27m hedge against the threat of Covid-19 turned into a whopping $2.6bn windfall as markets went into meltdown.
This incredible 100-fold return in a single month is often called ‘the greatest trade of all time’. And it helped the fund deliver a 70% return that year.
Inevitably though, Ackman does make mistakes. A large $1.1bn bet on Netflix stock in early 2022 soon soured and he exited the position, resulting in a loss of about $400m.
Also, the fund is currently running an extremely concentrated portfolio of just eight stocks. And Ackman uses derivatives, which are complex financial contracts, to hedge against market falls. So this isn’t your regular investment trust.
Nevertheless, these risks are probably priced into the shares, which are trading at a 36% discount to the fund’s net asset value (NAV). This is despite Pershing Square delivering the best five-year returns of any North America fund.
I’ll be buying this unique stock with a 10-year investment horizon.
