After a 20% drop this FTSE 100 stock looks like one of the best shares to buy in October

I can’t wait any longer. I reckon this popular growth stock is now one of the best shares to buy on the entire FTSE 100… and I’m going in.

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I’m drawing up a list of the best shares to buy in October and this FTSE 100 stalwart is right at the top. I‘ve been planning to buy it for years, but it was always a bit too expensive. Not now it isn’t.

The stock in question is spirits giant Diageo (LSE: DGE). I banked a 70% profit on its shares in 2006, and always regretted selling. My strategy today is very different. When I like a stock, I buy with the aim of holding it for decades, not a few years.

I wish I’d done that with Diageo. However, life sometimes throws up second chances, and this looks like one of them. Its share price has dropped 20.3% in the last year, and it seems like it’s too good an opportunity to miss.

Diageo now trades at 18.77 times earnings. That’s a far cry from the valuation of 23 or 24 times I got used to before. Interestingly, its shares continue to slide, even after a good month for the FTSE 100. The rising UK share price tide hasn’t floated this boat.

This is my big chance

The £70bn company is often seen as a defensive stock. It actually benefited from the pandemic, as people mixed cocktails at home, and most have carried on drinking during the cost-of-living crisis.

Its 2023 preliminary results, posted on 1 August, showed reported net sales rose 10.7% to £17.1bn. That’s pretty decent, albeit boosted by foreign exchange movements.

Diageo has been able to flex its pricing power, while its policy of “premiumisation” has attracted drinkers happy to spend more on upmarket brands.

Yet volumes actually declined 7.4%. This does worry me slightly. We live in a drinker’s world, but this may not always be the case. There’s a fair amount of evidence suggesting that Gen Z is drinking less and if that trend continues sales could suffer.

Yet with margins up 5.1% to £4.6bn, Diageo was able to boost its bottom line anyway. It should increase market share through acquisitions, which continue apace.

I’ll drink to that!

Management is focused on boosting shareholder returns, increasing earnings per share by 17.6% to 164.9p. It also hiked the final dividend 5% to 49.17p per share. Diageo has averaged a total shareholder return of 7% over the last five years, rising to 9% over 10 years. I fancy having some of that.

These are all good, solid reasons to take advantage of the recent share price dip, and I plan to buy it in October.

As ever, there are risks. Diageo’s biggest market is the US, which is menaced by a potential recession. New CEO Debra Crew expects “operating environment challenges to persist” in the 2024 tax year. If that wasn’t the case, the stock would be a lot more expensive.

I’m not too worried about 2024. I’m planning to hold the stock until 2034 and beyond. Plenty of us should still be drinking alcohol by then and I hope to be raising a glass to my successful purchase of Diageo’s shares.

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.

Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended Diageo Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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