My ISA Watch List: Diageo plc, Reckitt Benkiser Group Plc And Shire PLC

From 6 April 2015, we can load up our ISAs with shares to the value of the new £15,240 allowance.

What should we buy?

In the spirit of Warren Buffett and other great and successful investors, I reckon a quality-led approach to investing can deliver better long-term total returns than a price-led strategy.

Lead by price and we might end up dealing in some ropey old firms that come with hidden dangers. So, it may be better to sift the market for quality companies with great economics and attractive prospects. Once we’ve identified such quality-leaders, we can watch them and wait for a sensible entry point — perhaps during a period of general market weakness, or when some temporary issue knocks the firm’s share price.

With the aim of building a Champions’ League watch list, lets see why Diageo (LSE: DGE), Reckitt Benkiser (LSE: RB) and Shire (LSE: SHP) make the grade.

Consumer brands worldwide

An investment in Diageo backs the firm’s well-known brands such as Johnnie Walker, Crown Royal, J&B, Buchanan’s, Windsor, Bushmills, Smirnoff, Ketel One Vodka, Ciroc, Captain Morgan, Baileys, Tanqueray and Guinness. These addictive alcoholic super-brands have consumer appeal across geographies, and the firm has great potential to expand further into population-dense areas as their economies emerge and mature.

Last year Diageo earned about 37% of its operating profit from emerging markets such as Africa, Eastern Europe, Turkey, Latin America, the Caribbean, and the Asia Pacific, with the rest coming from Europe and North America.

Brand-driven growth

Reckitt Benckiser’s record on growth is a well balanced between revenue, cash flow and earnings. As with Diageo, the strength of Reckitt Benkiser’s business is found in its ‘power’ brands, names such as Dettol, Harpic, Durex, Strepsils, Gaviscon, Vanish, Cillit Bang and Calgon. Such consumer favourites generate brand loyalty from customers and have strong repeat-purchase credentials.

The firm’s recent full-year results revealed steady single-digit progress in profits and the chief executive reckons the firm enjoyed a good year despite challenging market conditions.

Growth in pharmaceuticals

The pharmaceutical sector offers another angle on defensive growth and Shire does a good job of building cash flow and earnings through research and development, and by acquisition. The firm produces a range of medicines and healthcare products in the areas of behavioural health and gastro intestinal conditions, rare diseases, and regenerative medicine, and there’s a strong pipeline of potential new treatments for a diverse assembly of diseases.

Shire operates in the US, UK and Switzerland, and has a network of offices and distribution channels throughout Europe, South America, Canada, and the Pacific Rim. Growth shows no sign of slowing, with the firm labelling 2014 another very good year. Given the increasing strength of the development pipeline, there seems much more to come.

The watch list so far

Including the firms identified in previous articles the ISA watch list looks like this:

ARM Holdings



PZ Cussons


Reckitt Benkiser Group


Diageo, Reckitt Benkiser Group and Shire are good candidates for an ISA investment, but I also want to tell you about a firm our analysts at the Motley Fool believe to be poised for global domination.  Click the link that follows and you can find out more about a specially prepared Motley Fool wealth report that examines the hidden story behind one of the most daring e-commerce stealth attacks of 2015. The idea certainly got me going! I followed it up, and you can too, by clicking here.

Kevin Godbold has no position in any shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.