Diageo (LSE: DGE) shares are in a nasty downtrend at the moment. Over the last year, they’ve fallen about 30%.
What’s interesting is that over the same time frame, another UK consumer stock has soared. Perhaps this name is akin to a reverse-Diageo play?
Diageo’s main problem
From US tariffs to weight-loss drugs, Diageo is facing a lot of challenges at the moment. The greatest challenge, however, is probably just the fact that a lot of people are drinking less.
This is especially true among younger generations. These days, these generations are more focused on health, wellness, and feeling good.
I see it all the time. For example, in London, I often see big groups of youngsters out running or training together at the gym on a Saturday or Sunday morning.
This is their social activity. And there’s not a hangover in sight.
This company is benefitting
This brings me to my reverse-Diageo play. It’s British supplements powerhouse Applied Nutrition (LSE: APN).
It sells protein powders, hydration solutions, pre-workout products, and tons of other health and wellness goodies. Whereas Diageo is selling everything you need for a big night out, Applied Nutrition has everything you want if you’re looking to get fit and healthy.
So it’s very much the opposite of an alcoholic beverages company. It appears to be a consumer stock for the modern age.
Its share price is certainly moving in the opposite direction. Over the last year, it has jumped about 95%.
An investment opportunity?
Are Applied Nutrition shares worth a look today? I think so.
Underlying growth here is really strong. For the six-month period to 31 January, for example, revenue was up 57% year on year to £74.5m. Meanwhile, the valuation looks very reasonable. At present, the shares trade on a price-to-earnings (P/E) of just 19.
One other thing to like is that the share price has pulled back a little recently due to Middle East uncertainty. This has created an attractive (in my view) entry point.
Of course, there are plenty of risks. Middle East instability is one – this could increase shipping costs and/or hit demand in this area of the world.
Longer term, I think a bigger threat is a major consumer slowdown as a result of job losses. If AI continues to take jobs, more younger people may find themselves out of work and strapped for cash and this could impact demand for discretionary products.
Overall though, I like the risk/reward proposition today.
How about Diageo?
What about Diageo shares though? Are they worth considering/holding on to?
Well, I’m a long-term holder here and I’m not writing them off just yet. I’m hoping new CEO Dave Lewis can turn the company – and the stock – around.
There are plenty of moves he can make. One smart strategy could be to focus more on lower alcohol beverages to appeal to the health-focused generation mentioned above.
Note that the valuation here is super low – currently, the P/E ratio is only 11.5. In light of this valuation, I do think they are worth considering as a recovery play.
