These 2 FTSE 100 giants are stinking out my portfolio. Time to sell? 

Buying FTSE 100 stocks on bad news is a tempting strategy, but as Harvey Jones is discovering, it doesn’t always yield fast returns.

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I’ve had a lot of success buying cheap FTSE 100 stocks over the last year, but not all of my picks have been winners. Two companies have done notably poorly but I can’t really complain. I knew they were struggling when I bought them.

My plan was to take advantage of their falling share prices to bag a cheap entry price, then wait for them to recover. Yet turning round a company isn’t easy. While the recent rally has driven the FTSE 100 towards all-time highs, these two have continued to fall.

I bought household goods specialist Unilever (LSE: ULVR) on 7 June last year. Obviously, that’s not long enough to judge the success of any investment, but I’m still frustrated by its subsequent lack of progress.

These stocks are struggling

The Unilever share price has fallen 11.58% over the last 12 months. Over five years, it’s down 13.04%. This is a dismal performance, from a company that for years was one of the most reliable growers on the FTSE 100.

Sales have been hit by the cost-of-living crisis and constant background noise about the quality of its management, with activist investors claiming the £95bn behemoth is too big, too sprawling, too ‘woke’, too uncompetitive. Some criticisms are fair, others have been overdone.

Unilever did return to volume growth in the final quarter of 2023 and rewarded shareholders with a £1.5bn share buyback. However, even CEO Hein Schumacher admitted results were still “disappointing”. He’s pushing ahead with a turnaround plan and has declared signs of progress. I’ll give it time – I’ve not held it long and recoveries tend to arrive when least expected – but I’m still a bit grumpy about it.

I bought spirits giant Diageo (LSE: DGE) on 24 November, a couple of weeks after the shares crashed 15% in a day as plunging sales in Latin America and the Caribbean hit profits.

Recovery stocks require patience

After years of wanting to add to the stock to my portfolio, I decided this was an unmissable opportunity to buy Diageo at a relatively low valuation (by its standards) of 17 times earnings. Then all I had to do was pour myself a stiff drink and wait for the share price to recover.

However, companies don’t issue profit warnings for fun. It’s usually a sign of bigger underlying problems, and more bad news often follows. Diageo’s premium drinks brand strategy has backfired as the recession forces consumers to downtrade to cheaper rivals. Lower overall consumption and high inventory levels have all taken their toll. The Diageo share price has crashed 24.27% in a year.

Again, all I can do is be patient. It’s a core investor skill, after all.

I’m letting off a bit of steam here. I knew Unilever and Diageo had their trouble and management wouldn’t transform performance overnight. While I wait, I’ll reinvest my dividends to buy more stock to today’s reduced price. They’re not the most generous income payers, yielding 3.91% and 2.87% respectively, but we must be grateful for small mercies.

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 positions in Diageo Plc and Unilever Plc. The Motley Fool UK has recommended Diageo Plc and Unilever 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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