My New Year’s resolution is pretty much the same as last year’s – keep buying dirt-cheap FTSE 100 shares. Unlike most of my resolutions, I find this one easy to stick to.
Last year, I bought three good blue-chip stocks on bad news, thinking they looked good value with a long-term view. In the short term, they’ve continued to struggle.
Spirits giant Diageo (LSE: DGE) started 2024 on a downer, still reeling from a shock drop in sales across its Latin America and Caribbean markets.
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I’ll drink to a Diageo comeback
The share price is down 12% this year, and 22% over five years. Inflation has hit demand for its premium brands, persuading drinkers to downgrade to cheaper rivals.
Plus there’s an underlying threat that younger people are drinking less. Even the stunning success of Guinness and its alcohol-free spin off Guinness 0.0, couldn’t arrest the decline.
Diageo’s shares look reasonable value with a price-to-earnings ratio of 18.07. That’s down from 24 times before recent troubles hit. The yield is solid but unspectacular at 3.17%.
If inflation eases, Diageo should capitalise, helped by its strong pricing power and broad market reach. I’m expecting a solid recovery in 2025. No guarantees though.
Shares in commodities giant Glencore (LSE: GLEN) are down almost 25% this year due to falling demand for metals and minerals, particularly from China.
The natural resources sector is highly cyclical, and the Glencore share price could just as easily jump 25% next year. Any recovery may be bumpy though. China is in a pickle, despite repeated stimulus plans. If interest rates and inflation remain high, Glencore could disappoint again.
In the longer run, I’m much more upbeat. Glencore should benefit from the shift to electric vehicles and renewable energy, which will drive demand for copper, nickel and cobalt, all of which it produces. Its reliance on coal poses long-term ESG risks though.
I fancy Glencore over GSK
The shares look good value with a P/E of 10.12. I’m hoping the modest trailing yield of 2.85% will be topped up by one-off payments and share buybacks.
I took advantage of a dip in the GSK (LSE: GSK) share price to snap up the pharmaceuticals and vaccine giant, only to see it slide further.
GSK is down 7.6% over 12 months, and has fallen 28% over five years. That’s a poor showing from a supposedly defensive stock.
A shadow hung over GSK for much of the year, in the shape of US litigation over withdrawn heartburn treatment Zantac. When that shadow lifted it was replaced by another one, with US President-elect Donald Trump limbering up to play hardball with big pharma.
Recent restructuring efforts, including the spin-off of its consumer health business Haleon, have allowed the board to refocus on its core pharmaceuticals and vaccine operations.
GSK’s pipeline of new drugs and vaccines is promising, but we’ve been waiting a long time for that to pay off. The dividend has suffered as the board pumps money into R&D.
The trailing yield has climbed to 4.33%, but that’s mostly due to the falling share price. Of the three, I think Diageo is best placed for 2025. Glencore and GSK should also rocket at some point, but I may have to be more patient.
