One struggling FTSE 100 stock I’d love to buy

While the FTSE 100 is down 0.3% in 12 months, this heavyweight stock has crashed by more than a quarter. It now looks a compelling buy to me!

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For most of 2023, I’ve argued that the FTSE 100 is deep into value territory, both in historical and geographical terms. Yet the index of London’s main market keeps underperforming global rivals.

The flagging FTSE 100

Over six months, the Footsie is down 1%, but is broadly flat this calendar year. Over one year, it’s slipped 0.3%, but has produced a positive return of 6.7% over five years.

It’s important to note that these figures exclude dividends, which are very generous from some Footsie firms. Indeed, my wife and I have built a new family portfolio to generate passive income from FTSE 100 and FTSE 250 stocks.

One Footsie share I’m desperate to own

Not only does the Footsie itself look cheap, but I see even deeper value lying within some constituent stocks. Here’s one that I don’t own, but would love to buy when I have investable cash.

My struggling share is Diageo

Diageo (LSE: DGE) is exactly the kind of powerful, long-established business I’d be delighted to own.

The global drinks giant is a world leader in booze, thanks to brands including J&B and Johnnie Walker whisky, Smirnoff vodka, Captain Morgan rum, Baileys Irish cream, Gordon’s and Tanqueray gin, and Guinness stout.

Employing over 30,000 people, Diageo sells more than 200 drinks brands in over 190 countries. It dates back to 1627, having been in business for nearly four centuries. Now that’s the kind of corporate permanence I admire.

Alas, the Diageo share price has taken a hammering this year. On 1 December 2022, it was riding high at 3,881.5p. But after warning of a recent sales slowdown in Latin America and the Caribbean, the shares crashed to a 52-week low of 2,719p on 10 November.

On that day — and at the very low — I begged my wife to release cash to buy a big slug of Diageo stock at this knockdown price. Unfortunately, she plans to buy an electric car next year, so had put a big chunk of cash into a one-year savings bond. Rats!

As I write, this stock stands at 2,783p, just 2.4% above its 2023 low. This values the storied group at £62.8bn, making it a FTSE 100 super-heavyweight. Over one year, the share price has dived by 26.5%, but it is down just 1.6% over five years (again, excluding dividends).

Today, this stock is valued at just 17.1 times earnings, well below historic levels. This produces an earnings yield of 5.8%, covering the yearly dividend yield of 2.9% by 2.1 times. To me, this margin of safety suggests that this cash payout is safe for now — and could even go higher.

Frankly, so keen am I to own this stock that I’m considering liquidating other investments to release cash to buy this stumbling FTSE 100 stock. Five and 10 years from now, I’d expect this purchase to have paid off big-time.

Of course, I could be wrong. Sales growth for alcoholic drinks is slowing, especially for premium and super-premium brands. Also, consumer spending is struggling due to rising interest rates, high inflation, and eye-watering energy bills.

Finally, while this FTSE 100 giant’s earnings may take a temporary knock, I expect it will bounce back in time!

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.

Cliff D'Arcy has no position in any of the shares mentioned. The Motley Fool UK has recommended Diageo. 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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