For years, I’ve favoured buying what I see as good UK shares after they’ve issued bad news. It allows me to buy brilliant companies at a reduced price, often with a higher dividend yield thrown in.
It takes time and a bit of nerve, but my strategy has largely paid off. But three purchases continue to struggle, and all have one thing in common. The bad news began with a profit warning.
I dived into Diageo
The first of the three was Diageo (LSE: DGE), a stock I’d been desperate to own for years. On 10 November 2023, the spirits giant warned that first-half 2024 organic operating profits would decline after a sharp fall in sales in Latin America and the Caribbean, made worse by inventory problems.
The shares fell more than 10% on the day. And kept falling. I dived in on 28 November at 2,815p. When they fell again after a second profit warning in August 2024, I topped up at 2,566p.
The stock now trades around 1,950p, leaving me down 30%. One of the worst performers in my Self-Invested Personal Pension (SIPP).
Diageo’s premium drinks strategy is faltering globally, with younger drinkers consuming less. Tariffs on Mexican tequila and Canadian whisky brands haven’t helped. The board reckons the impact will be around $150m.
Still, there are signs of life. Organic net sales rose 5.9% in the three months to 31 March, and the group expects to generate $3bn in free cash flow from next year, while trimming $500m in costs over three years. The long-term story might still hold. It’ll just take longer to play out.
JD Sports shares keep falling
JD Sports Fashion was another stock I’d admired from a distance. I finally snapped it up two months after a profit warning on 21 November 2023 hammered the share price. I bought at 114.6p in January and again at 80p in January 2024. Both purchases came after disappointing Christmas updates. The share were picking up at speed, but then tariffs killed a putative share price rally.
JD Sports remains on the back foot. I’m down 25%.
My third post-warning buy was Burberry (LSE: BRBY), which dropped the bomb in November 2023 and again in January 2024. This time I was more cautious, buying in May 2024 at 1,156p and again in July at 857p. Then a third warning landed.
At least that final purchase is in the black, with the shares trading at 1,099p. I’m up just under 2% overall.
Burberry stock’s up
Burberry got its brand strategy badly wrong, but now it’s trying to put things right. Encouragingly, the shares are up 33% in the past month, making it one of the top FTSE 250 performers. Let’s hope the other two follow.
Profit warnings aren’t just blips. In my experience, they often signal a deeper shift in the wrong direction. Diageo’s problems spread far beyond Latin America. JD Sports lost its footing, and Burberry looked out of touch.
Personally, I’m staying invested. But I’ve learned to be more careful. From now on, I’ll wait until the bad news has played out. Because one profit warning often leads to another.
