Are Diageo plc, Moss Bros Group plc And NEXT plc The Best Way To Play Today’s Uncertain Market?

Markets fell sharply and then rebounded quickly during the first three months of 2016. There’s no way of knowing what will happen during the rest of the year. This means that it’s important to have some stocks in your portfolio that are capable of performing well in uncertain conditions.

I need a drink

One possible choice is drinks giant Diageo (LSE: DGE), owner of brands such as Smirnoff, Guinness and Bell’s.

Diageo shares don’t come cheap, as they trade on 21 times 2016 forecast earnings. A forecast dividend yield of 3.1% is well below the FTSE 100 average of 4.05% too.

What Diageo does offer are stable profits and free cash flow generation that few other companies can match. Between 2010 and 2015, Diageo’s reported earnings per share rose by 43%. The dividend payout climbed by 51%.

The only problem is that this growth has been slowing. Earnings per share are expected to be flat this year, but to rise by 8% in 2016/17. Dividend growth is expected to be about 5% each year.

I rate Diageo as a long-term hold, but I’m waiting for a period of weakness to give me a better price at which to add to my holding.

Smart performance is improving

Shares in men’s formal wear specialist Moss Bros Group (LSE: MOSB) rose by 6% this morning, after a strong set of results.

The firm said that like-for-like hire sales rose by 11.7% last year, while like-for-like retail sales were 7.6% higher. Underlying pre-tax profit rose by 23.1% to £5.9m. This solid performance is backed by a very strong balance sheet too.

Net cash was £17.3m at the end of January, down by just £2.3m since last year despite investment in a store refit programme.

The outlook seems strong for Moss Bros. Earnings per share growth of 14% is expected for this year. On a 2016/17 forecast P/E of 19, the shares aren’t cheap. However, the group’s net cash and a well-covered dividend yield of 5.5% suggests the shares could still be a good buy.

Does this big faller offer value?

Shares in NEXT (LSE: NXT) have fallen by 32% over the last six months. A downbeat outlook statement in the firm’s recent results caused the shares to fall by 15% in one day in March.

Although earnings forecasts have also fallen, the decline in the share price has been much greater. This means that Next shares now trade on a quite modest forecast P/E of 12. That’s cheaper than for many years, but is it good value?

I’m beginning to think that Next could be a buy. The shares now offer a forecast dividend yield of 5.2%, which should be backed by the group’s formidable free cash flow. Earnings are now expected to be flat this year, before rising modestly in 2017/18.

The only risk is that now may be too soon to buy. Next shares have continued to drift lower since March’s shock fall. There’s also the risk that the firm’s management may scale back profit guidance for this year.

On the other hand, Next’s chief executive, Lord Wolfson, has a reputation for cautious forecasts. Things may not be as bad as expected.

I’ve added Next to my watch list, and am considering a buy.

However, I'm not sure that the retail sector is the safest place for my cash at the moment. The general outlook seems quite uncertain.

I'm not alone in this view. The Motley Fool's top stock pickers didn't choose any retail stocks for their exclusive wealth report, 5 Shares To Retire On.

I can't reveal the names of all five stocks here, but I can say that one of our experts' choices was Diageo.

If you'd like full details of all five stocks, then download this free, no-obligation report today.

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Roland Head owns shares of Diageo. 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.