I sold this FTSE 250 share to buy this fallen angel!

I bought this FTSE 250 share, only to see it crash within months. Though it has now bounced back, I’ve sold out to buy into this Footsie powerhouse.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

For me, finding quality shares to buy is much easier than deciding when to sell sliding stocks. That said, I recently sold one of my FTSE 250 holdings.

IDS: I didn’t sell

In June 2022, my wife and I bought shares in International Distributions Services (LSE: IDS), formerly Royal Mail. We paid 273.2p to buy into the provider of the UK’s universal postal service.

Alas, this trade soon went wrong, as the IDS share price kept falling, continuing its descent from 600p in mid-2021. On 14 October, it bottomed out at 173.65p, down almost £1 (or 36.4%) from our entry price.

Launched in 1516 by Henry VIII, the former Royal Mail was battered by lengthy strikes in 2022-23. This industrial action caused huge disruption to the group, racking up huge losses.

On 18 May 2023, the firm revealed an annual operating loss of £1.04bn and cancelled its dividend. I almost sold then, but decided not to with the share price below 200p.

Ditching the no-dividend stock

Despite steep falls in its share price, I held on to our IDS stake and awaited developments — perhaps more by luck than judgement. The shares have since roared back to life, hitting a 2023 high of 291.2p on 22 December.

Seeing this price surge, I decided to seize the opportunity to exit the no-dividend stock. We finally sold our IDS shares for 279.5p a share. After charges, this produced a 6.8% profit on our original investment — boosted by extra shares we’d bought with earlier IDS dividends.

I consider myself lucky to have made a small positive return on this difficult investment. Though IDS boomed as parcel deliveries soared in Covid-hit 2020-21, worker disputes later hit this business hard. And with no dividend expected until 2025, I’m forced to look elsewhere for income.

I’ll buy this Footsie giant

My investing hero, American mega-billionaire and philanthropist Warren Buffett, once said: “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”

Taking this advice to heart, I’m going to buy into drinks giant Diageo (LSE: DGE). It’s one of the world’s largest producers of alcoholic drinks, with over 200 popular brands including gin, whisky, rum and stout. Each week, billions of drinkers sip and gulp Diageo products.

However, hit by the higher cost of living, quarterly sales growth has slowed, with sales falling in Latin America and the Caribbean. After weak results on 10 November, the share price crashed to a 52-week low of 2,719p.

On Friday (5 January) the stock closed at 2,765p, valuing this consumer-goods Goliath at £61.9bn. This means that its shares trade on a multiple of 16.8 times earnings. Also, they offer a dividend yield of 2.9% a year, covered 2.1 times by trailing earnings.

To me, these fundamentals look attractive to buy into one of the FTSE 100‘s true powerhouses. Sure, these shares aren’t cheap, but quality usually sells at a premium — much like Diageo’s top-end brands.

Down 24.3% over one year, but up 0.3% over five years, this seems like as good a time as any to get on board the Diageo bandwagon. Hence, I’ll purchase a stake as soon as regulations allow (mid-week next week). And I hope this investment goes better than my IDS trade!

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.

More on Value Shares

Fireworks display in the shape of willow at Newcastle, Co. Down , Northern Ireland at Halloween.
Investing Articles

Will the BP share price go gangbusters under President Trump?

The BP share price has had a rough ride lately and Harvey Jones says the FTSE 100 oil giant looks…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

Could the stock market crash in 2025?

Our writer considers some possible drivers for a stock market crash. Rather than try to time it, he's wondering how…

Read more »

Investing Articles

The Burberry share price rises on takeover rumours. But I still don’t want to buy

Speculation about a possible takeover sent the Burberry share price higher. However, our writer’s steering clear of the luxury fashion…

Read more »

Young female analyst working at her desk in the office
Investing Articles

Near a 6-month low! Can a move to digital help shore up Lloyds’ share price?

After Lloyds shares slumped 14% at the end of October, our writer investigates reasons for the fall and why he…

Read more »

Illustration of flames over a black background
Investing Articles

Could the stock market crash in 2024? Here’s what I’m doing!

Some are predicting a global stock market crash led by US equities. Our writer gives his verdict and explains his…

Read more »

Investing Articles

Up 66%, is this FTSE 250 share still too cheap to ignore?

This FTSE 250 firm operates in a competitive sector but has outperformed most of the market since the start of…

Read more »

Investing Articles

Burberry shares: undervalued FTSE gems that are ready to rocket?

Burberry shares soared at the beginning of the week as the takeover rumour mill went into overdrive. Is Paul Summers…

Read more »

Investing Articles

Up 105% in a year! Is this rocketing FTSE bank the perfect pick for my Stocks and Shares ISA?

Harvey Jones is drawing up a shortlist of stocks to purchase inside his Stocks and Shares ISA allowance. This FTSE…

Read more »