The Motley Fool

Are Diageo plc, NEXT plc And Avanti Communications Group PLC On The Brink Of Failure?

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

One of the hardest things for investors to judge is whether a setback for a company is a temporary blip or the beginning of a more serious problem.

Today, I’m looking at whether the glory days could be over for premium spirits giant Diageo (LSE: DGE), high street favourite Next (LSE: NXT) and satellite operator Avanti Communications (LSE: AVN).

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...

Attractive buying opportunity

Diageo’s share price climbed from £5 at the turn of the millennium to over £21 by summer 2013, with investors also enjoying a tremendous run of rising dividends. However, over the last couple years, while the dividend has continued to tick up, earnings growth has stalled and the share price has edged lower.

In my view, the really important bottom line with Diageo is its truly rare and valuable world-class brands, which — if well-managed — should be capable of delivering the kind of returns investors have seen in the past.

As fund manager Nick Train (a.k.a. Britain’s Warren Buffett) said: “For companies of Diageo’s calibre … prolonged business and share underperformance is untenable,” and “if the incumbents can’t get adequate returns on the brands and their cash flows, there are plenty of other management teams who would fancy a go.”

I believe the global strength of Diageo’s brands means the company has a bright future — whether it be achieved by current or new management — and I reckon today’s depressed share price represents an attractive buying opportunity.

Structurally challenged?

Next isn’t an elite global brand but is an extremely well-run company, with an experienced and high-calibre management team, resolutely focused on running the business for the benefit of shareholders.

This focus has seen the shares rise from less than £6 at the turn of the millennium to near £60 today . Buying Next’s shares on a dip — after a poor quarter due to unseasonable weather or suchlike — has proved a profitable strategy over the years.

With the shares currently well down from a record high of over £80 as recently as December, is this another great opportunity to buy on a dip? The wrong seasonal weather played a part in the drop, but analysts at Exane Paribas have been taking a close look at the important Directory business, and reckon a “potential fall from grace as a best-in-class retailer potentially transforms into a structurally challenged one”.

I would rather pay a bit more for Next’s shares when there’s greater visibility on this issue than buy now, and see a long and painful derating if a major structural problem with the company’s Directory growth engine is indeed emerging.

Less than a quid, but…

Avanti’s shares closed at £2.35 on its market bow in April 2007 and powered up to over £7 by the end of 2010. However, the gains came not on the back of rising cash flows and dividends, but on the hope that the satellite broadband services company might deliver in the future.

That future has been pushed further and further out with Avanti repeatedly missing targets. This has been a story of unerringly bullish director-speak, selectively highlighted numbers and flattering accounting, versus ongoing cash burn, shareholder dilution and rising borrowings.

Avanti has yet to demonstrate it can break even, far less deliver the kind of cash flows and dividends that have rewarded investors in Diageo and Next. As such, although Avanti’s shares are now trading at under £1, I’m not tempted.

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic…

And with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be daunting prospect during such unprecedented times.

Fortunately, The Motley Fool is here to help: our UK Chief Investment Officer and his analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global lock-down…

You see, here at The Motley Fool we don’t believe “over-trading” is the right path to financial freedom in retirement; instead, we advocate buying and holding (for AT LEAST three to five years) 15 or more quality companies, with shareholder-focused management teams at the helm.

That’s why we’re sharing the names of all five of these companies in a special investing report that you can download today for FREE. If you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio, and that you can consider building a position in all five right away.

Click here to claim your free copy of this special investing report now!

G A Chester has no position in any shares mentioned. The Motley Fool UK has recommended Diageo. 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

Renowned stock-picker Mark Rogers and his 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 click below to discover how you can take advantage of this.