According to Warren Buffett, great investment opportunities don’t come around often. But with August imminent, I think there’s an unusually good chance to buy shares at unusually low prices.
After a turbulent month in the stock market, two stand out to me. Both are big firms I think have excellent long-term prospects, but some recent issues are making them unusually cheap.
Diageo
Diageo (LSE:DGE) shares took a big drop after the firm reported earnings, but I’m not entirely sure why. Sales fell 1% and profits fell 5%, but this is largely in line with what I was expecting.
The company reported revenue declines in Latin America and the Caribbean, Africa, and the US. But to my mind, these highlighted existing risks with the stock, rather than revealing new ones.
The big issue in Latin America and the Caribbean has been consumers trading down as spending power deteriorates. But this has been well-documented, causing the stock to fall since November.
In Africa, the main issue was a decline in the Nigerian naira relative to other currencies. But that shouldn’t be a surprise either – Airtel Africa shareholders could have seen this one coming.
Similarly, Goldman Sachs indicated earlier in the month that data from US wholesalers indicated Diageo’s products were faltering there. And the latest report largely confirms this.
As a result, the report didn’t give me any fresh causes for concern about Diageo shares. And since I thought the stock was good value before, I’m looking to keep buying it here.
McDonald’s
McDonald’s (NYSE:MCD) also reported some disappointing-looking results earlier this week. But the stock market liked the look of things and pushed the stock up 5%.
I think the market’s right on this one. Global sales fell 1% and earnings per share were down around 11%, but I see this as a short-term blip for a company in a strong long-term position.
In terms of what’s causing the decline, GLP-1 drugs and consumers trading up are both reasons I’ve heard suggested. Both of these are risks, but I don’t think either of is the reason sales are down.
A core part of the company’s customer base is teenagers, especially in the US. According to the Piper Sandler Teen Survey, US youngsters have less spending power than they did a year ago.
As far as I can tell, there’s no evidence this demographic is changing to healthier products and I don’t think they’re all on anti-obesity medication. They just have less disposable cash available.
It therefore looks to me as though McDonald’s still has its dominant market position intact. That’s why I’m looking to buy the stock while it’s down 12% since the start of the year.
Opportunistic investing
It’s rare to find shares like Diageo and McDonald’s trading at bargain prices. The reason is investors generally know these are companies with durable competitive advantages.
I think both stocks look like opportunities at the moment. That’s why I’m looking to add both to my portfolio in August.
