I have three options when investing. First, pay someone else handsomely to manage my money. Second, just follow the market by, say, buying a cheap, simple FTSE 100 tracker fund. Third, pick my own shares and roll with Mr Market’s punches.
I’m a FTSE 100 bargain hunter
Early in my investing career, I decided that the most fun to be had was by building my own portfolios of shares. Sometimes, I’ve done really well and made fortunes. At other times, I’ve blown up badly, with my three worst trades losing me close to £1m. Yikes.
Today, I see tons of hidden value among blue-chip Footsie shares. With 100 to choose from, there are plenty that seem unloved, unwanted, and undervalued. Here is one hidden treasure that I think stands a decent chance of beating the wider market in 2024 and beyond.
Diageo is my drinks dynamo
Diageo (LSE: DGE) is one of the world’s largest producers of alcoholic drinks — gin, whiskey, rum, stout — you name it, Diageo distils or brews it. With over 200 popular brands in its cupboard, this group serves billions of drinkers worldwide.
Alas, partly driven by the cost-of-living crisis, Diageo’s quarterly sales growth has slowed, with sales actually falling in Latin America and the Caribbean. This delivered a blow to an already weak share price. At its 52-week low, it plunged to 2,719p after reporting results on 10 November.
As I write, the shares have moved up 4.4% from rock-bottom and currently stand at 2,839.5p. This values this FTSE 100 powerhouse at £63.6bn — a price tag I’d gladly pay to own this storied business.
Diageo shares don’t look super-cheap at present. They trade on an earnings multiple of 17.3, for an earnings yield of 5.8%. Yet the dividend yield of 2.8% a year is covered almost 2.1 times by earnings, so it has room to grow when this tanker turns around.
Admittedly, Diageo shares have had a tough time since their record highs of late December 2021. Indeed, they have lost 14.2% of their value over six months, as well as diving by 22% over one year. And over five years, they have produced a tiny capital gain of 0.5%, excluding dividends.
I love this business
My all-time investing hero, American mega-billionaire and philanthropist Warren Buffett, once remarked, “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price”.
In my 37 years as an investor, I’ve owned Diageo shares at times, but not for several years. Still, I think now could be a great time for the D’Arcys to become Diageo’s part-owners.
I’m so keen to buy into this great British success story that we’ve actually sold another holding to buy into this business ASAP. At current price levels, I think we’re getting a great deal at a fair price. Finally, after a poor 2022/23, I’m hoping for better returns for Diageo shareholders in 2024/25!
