Is it game over for the Diageo share price?

The Diageo share price is showing as much spirit as an alcohol-free cocktail. Harvey Jones is wondering whether he should be investing his money elsewhere.

| 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.

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.

I’ve been thinking a lot about the Diageo (LSE: DGE) share price lately. That’s what happens when I buy a recovery stock that doesn’t recover.

I piled into the FTSE 100 stalwart last January, hoping to take advantage of a dip in its share price after a sales slump in its Latin American and Caribbean markets triggered a profit warning.

As a value investor, I like snapping up out-of-favour companies to benefit when their fortunes recover. Hard experience has taught me this requires patience though, and that means a lot longer than 12 months. So why am I getting itchy?

Should you invest £1,000 in Diageo right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Diageo made the list?

See the 6 stocks

Can this ailing FTSE 100 stock get its bite back?

In my darker moments, I think it could be game over for Diageo shares. Obviously, that’s ridiculous. This is a £52bn company with iconic brands like Johnnie Walker, Baileys, and Smirnoff. It also happens to be the proud owner of the world’s most fashionable drink, good old Guinness.

That hasn’t stopped its shares falling 15% over the past year and 36% over three. Can it get its fizz back?

Created with Highcharts 11.4.3Diageo Plc PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

The Latin American problems are dragging on. The slump was partly down to local drinkers downgrading to cheaper brands than the premium ones Diageo now specialises in. But it also suffered inventory issues. Has management lost its edge since the glory days under inspirational CEO Ivan Menezes?

Drinkers in the US, Europe, and China are feeling the pinch. Normally, I’d brush that off as a cyclical issue, saying they’ll feel thirsty soon enough when they have a bit more cash in their pockets.

My concern is that younger people are drinking less alcohol amid wellness trends and health concerns. If this generational shift is a more than a passing trend, Diageo could suffer.

If young people drink less, even us oldies may start to become self-conscious about our own refuelling habits. While Diageo has a great opportunity in its alcohol-free Guinness 0,0, I don’t see this as transferable across its spirits catalogue.

The drinks sector needs a little pick-me-up

President-elect Donald Trump has mooted 25% tariffs on imports from Mexico. That’s a worry for Diageo, as its subsidiaries shipped more than 25m litres of tequila to the US last year, including brands Don Julio and Casamigos.

Given these worries, I’ve even considered selling my Diageo shares, which are worth 12% less than I paid. So what stopped me?

Well, people have been drinking booze for millennia. What are the chances of them stopping on my watch? Also, as the tobacco giants showed, there’s a lot of money to be made in a declining sector. Diageo is a global company, and middle classes in emerging markets are upgrading to premium spirits.

While the yield is a relatively modest 3.36% today, Diageo has a robust policy of hiking shareholder payouts. Let’s see what the chart says.


Chart by TradingView

While I dither, Diageo shares continue to stumble. They look shockingly cheap trading at just 16.9 times earnings. I remember when they traded at 24 or 25 times.

The 20 analysts offering one-year share price forecasts have produced a median target of just over 2,705p. If correct, that’s up around 15% from today. Even that doesn’t excite me. I’m clearly feeling glass half-empty towards the stock. I’ll hold, but I won’t buy more.

Should you buy Diageo now?

Don’t make any big decisions yet.

Because Mark Rogers — The Motley Fool UK’s Director of Investing — has revealed 5 Shares for the Future of Energy.

And he believes they could bring spectacular returns over the next decade.

Since the war in Ukraine, nations everywhere are scrambling for energy independence, he says. Meanwhile, they’re hellbent on achieving net zero emissions. No guarantees, but history shows...

When such enormous changes hit a big industry, informed investors can potentially get rich.

So, with his new report, Mark’s aiming to put more investors in this enviable position.

Click the button below to find out how you can get your hands on the full report now, and as a thank you for your interest, we’ll send you one of the five picks — absolutely free!

Grab your FREE Energy recommendation now

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. The Motley Fool UK has recommended Diageo 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.

More on Investing Articles

Investing Articles

Prediction: 12 months from now, £5,000 invested in Tesla stock could be worth…

Tesla stock has endured a miserable year so far, falling by 29%. Muhammad Cheema takes a look at how it…

Read more »

Investing Articles

See what £10,000 invested in Tesla shares at their mid-December peak is worth today 

As the world absorbs the full scale of Donald Trump's tariffs, Tesla shares are reeling. Investors who bought the stock…

Read more »

Hand flipping wooden cubes for change wording" Panic " to " Calm".
Dividend Shares

2 ‘safe’ LSE dividend stocks to consider as global markets sell off

As global markets experience high levels of volatility due to economic uncertainty, investors are piling into these ‘safe-haven’ dividend stocks.

Read more »

Investing Articles

US stock market rout: an unmissable opportunity for investors?

His tech-heavy portfolio has been smashed by Trump’s tariffs. However, Dr James Fox believes there could be some opportunities in…

Read more »

Investing Articles

After a 13% ‘Trump tariff’ fall, is the Barclays share price too cheap to miss?

Does the Barclays share price fall mean we should all panic and run screaming from the stock market? Nah, of…

Read more »

Mature Caucasian woman sat at a table with coffee and laptop while making notes on paper
Investing Articles

2 investment trusts to consider for a Stocks and Shares ISA

These two investment trusts have a different focus -- but our writer sees both as worth considering, one more for…

Read more »

Investing Articles

Deutsche Bank reiterates Buy rating on 9.6% yielding FTSE 250 stock that was “most shorted in UK”

Our writer investigates why a major broker remains optimistic about a FTSE 250 stock that was once the most shorted…

Read more »

Investing Articles

2 things to remember when stock markets are turbulent

US trade policy has rattled the stock markets in New York, London and elsewhere. Our writer outlines a couple of…

Read more »