The Motley Fool

Has The Recent Sell-Off Presented An Opportunity To Buy Diageo plc, SABMiller plc & Whitbread plc On The Cheap?

With the FTSE 100 falling to its lowest level in 2015, now may be the perfect opportunity to buy quality companies on the cheap. The share prices of quality companies may not have fallen as much as commodity-related or cyclical shares, but quality often comes at a premium. Warren Buffett once reportedly said: “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”

Quality companies are ones that benefit from wide economic moats. Diageo (LSE: DGE), SABMiller (LSE: SAB) and Whitbread (LSE: WTB) are three companies that boast broad global exposures, dominant market positions and strong pricing power. These factors give them a competitive advantage over rivals, and this enables them to generate wide profit margins and stable free cash flows.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

Diageo

Shares in Diageo currently trade at a forward P/E of 19.7, with analysts currently predicting underlying EPS will grow 3% to 91.6 pence in 2015/6. Valuations for the company are now less demanding and, in addition, Diageo pays a reasonably attractive prospective dividend yield of 3.3%.

Diageo has already been hit hard by the slowdown in emerging markets and the lack of exposure to the fast-growing bourbon market in North America. But, with long-term branded spirits consumer trends remaining intact and profit margins near 30%, Diageo is still a great company.

The lower valuation multiples for Diageo could bring renewed takeover interest from 3G Capital, a private equity firm owned by Brazilian billionaire, Jorge Paulo Lemann. Lemann could be interested in a possible tie-up of Diageo with AB InBev, to create an enlarged beer and spirits business.

SABMiller

SABMiller has already been affected by the slowdown in China and the weak consumer spending in Europe. In its latest trading update, SABMiller’s total lager volumes declined 1% in the three months leading up to 30 June. But soft drink volumes grew 4% and the company continued to see robust demand from Africa.

SABMiller, with its sizeable exposure to fast growing African consumer markets, is also a potential takeover target for 3G Capital and AB InBev. AB InBev’s focus on higher value beer products has meant that it has made limited strides in the African market, and a combination of the two companies could create a truly globally dominant beverage producer.

With expectations that underlying EPS will fall 2% this year, SABMiller has a forward P/E of 21.8. Analysts expect EPS will bounce back by 8% in the following year though, with forecasts of underlying EPS of 150.0 pence in 2016/7. Thus, its forward P/E based on 2016/7 earnings is expected to be 20.0. Although valuations are still relatively high in today’s market, shares in SABMiller are unlikely to get much cheaper.

Whitbread

Whitbread’s growth strategy remains strong. Its two most popular brands, Premier Inn and Costa, are seeing strong growth in like-for-like sales, and the company continues to invest in new store openings. In the 13 weeks to 28 May, like-for-like sales for the group rose 4.3%, whilst total sales grew 12.5%.

Analysts expect Whitbread’s adjusted EPS will grow by another 14% over the next two years, which gives its shares forward P/E ratios of 21.5 and 18.9, based on the expected earnings of 241.0 pence and 274.2 pence for 2015/6 and 2016/7, respectively.

“This Stock Could Be Like Buying Amazon in 1997”

I'm sure you'll agree that's quite the statement from Motley Fool Co-Founder Tom Gardner.

But since our US analyst team first recommended shares in this unique tech stock back in 2016, the value has soared.

What's more, we firmly believe there's still plenty of upside in its future. In fact, even throughout the current coronavirus crisis, its performance has been beating Wall St expectations.

And right now, we're giving you a chance to discover exactly what has got our analysts all fired up about this niche industry phenomenon, in our FREE special report, A Top US Share From The Motley Fool.

Click here to claim your copy now — and we’ll tell you the name of this Top US Share… free of charge!

Jack Tang has no position in any shares mentioned. The Motley Fool UK has no position in any of the 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.

Our 6 'Best Buys Now' Shares

The renowned analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply enter your email address below to discover how you can take advantage of this.

I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement.