The Diageo (LSE: DGE) share price has given my portfolio quite a beating. I bought in two years ago after the shares dipped following a profit warning, but there’s been more bad news since. The stock’s plunged 25% and over two years it’s down more than 50%. But I’m holding tight, because when sentiment turns I reckon this renowned FTSE 100 blue-chip could recover at speed. But how long do we have to wait?
Diageo shares face a whole heap of challenges. Consumers are under pressure, the US is flirting with recession, and many drinkers are downgrading from its premium brands to cheaper alternatives. US tariffs aren’t helping either. There are long-term structural worries too, as young people drink less and new weight loss drugs that suppress appetite may nudge people away from alcohol too.
My bargain buy backfires
So I decided to ask ChatGPT for a view. I know, I know. It’s a robot, it doesn’t have a view. It isn’t a stock picker either, all it can do is lift data it finds online, rather than offer original insight. I just wondered if it could help give me a sense of how the market’s talking about the shares. So how did it do?
ChatGPT typically leans to the positive and assurred me there are reasons for cautious optimism saying: “Dave Smith, who has experience at Tesco and Unilever, will take over as CEO in January. A new leader with a strong track record could steer the company back on course”.
Weirdly, it sourced that from The Motley Fool, lifted from an article I’d written. Which isn’t really much use to me. So I pressed it a little harder and it replied: “Diageo is a globally recognised, fundamentally strong company, but its shares have been punished by macroeconomic pressures and consumer trends. Recovery is possible, particularly under new management, but it’s likely to be gradual rather than rapid”.
That’s really generic. Pretty much what I’d expect a robot to say. I decided it was time to do my own research instead.
FTSE 100 recovery opportunity
Diageo’s valuation looks reasonable after its struggles, with a price-to-earnings ratio of 14. Back in the day, it hovered around the 25 mark. It’s also a much better dividend income stock than it was, with a trailing dividend yield of 4.6%. That gives me something to hold onto while I wait for better news. Sadly, there’s not much of that around.
On 6 November, Diageo cut full-year sales and profit forecasts, citing weak demand for Chinese white spirits and sluggish US consumer spend. The board expects 2026 organic net sales to be flat or slightly lower. No wonder investors are so downbeat.
I think things could improve next year, but I’m pinning my hopes on Smith’s leadership rather than a sudden turnaround in consumer habits or a broader economic pick-up. More patience required, but that’s investing.
Typically, when beaten down stocks take-off, they do so rapidly. Often, when investors least expect it. I don’t want to miss that. So I’ll hang on and wait for that happy day to come (while crossing my fingers).
I think investors might consider buying it, but only if they’re also prepared to hold on for the long haul. That’s my flawed, human perspective. But I hope it contains a tad more insight than AI’s willing or able to give.
