I have made no secret my admiration for Diageo (LSE: DGE) down the years.
Even as earnings slipped in previous years due to the anti-extravagance measures introduced in China, a problem compounded by the acquisition of baiju producer ShuiJingFang back in 2013, I remained convinced by the vast revenues potential of the London spirits star.
You see, Diageo is unmatched when it comes to the strength of its product portfolio. And the company’s talons stretch far and wide, from Guinness stout and Baileys liquor through to Johnnie Walker whisky and Captain Morgan rum. Drinkers love these labels so much that, broadly speaking, they are unprepared to switch down even in times of broader pressure on their wallets.
With conditions in its heartland of North America steadily improving (Diageo sources 38% of total revenues from the territory), and momentum also picking up in the company’s other main regions (net sales in Greater China boomed 25% in the 12 months to June), the drinks giant’s sales outlook is becoming ever rosier.
And my optimism is shared by City brokers, who have predicted bottom-line growth of 8% in the fiscal period ending June 2018. This creates a slightly toppy forward P/E ratio of 20.6 times (a little distance above the FTSE 100 corresponding average of 15 times), although I believe this is stellar value given the growing popularity of Diageo’s blue riband labels across the globe.
I also reckon that precious metals producer Randgold Resources (LSE: RRS) is another blue-chip beauty that could generate stunning returns now and in the future.
While gold values may have slumped to six-week troughs below $1,300 per ounce in recent days, I am convinced there remains plenty of trouble ahead that should keep the safe-haven commodity well bought.
The yellow metal has fallen this week following the Federal Reserve’s assertion that it would begin pulling monetary stimulus from next month, a statement that helped boost the embattled dollar.
Still, the ongoing turbulence in the White House, including the continuing diplomatic stand-off with North Korea and now Iran, the ongoing investigations into links between Russia and Donald Trump’s election campaign, and the possibility of further struggles to get key legislation passed, could easily see the greenback trek lower again.
As if this wasn’t enough, there are plenty of other factors that could keep the store-of-value asset well bought. The ongoing Brexit saga springs immediately to mind, not to mention rising terrorist activity across Europe, while a continuation of recent disappointing data from China could also drive gold prices higher again.
Against this backcloth the Square Mile’s many analysts expect Randgold to deliver a 30% earnings improvement in 2017, and to follow this with a 19% advance next year.
And these projections make the digger brilliant value for money, in my opinion — a forward P/E rating of 28.9 times is undoubtedly high, but a PEG reading bang on the bargain watermark of 1 indicates that Randgold is actually attractively priced relative to its expected growth trajectory.
With the company also hiking output across African assets, I believe it is in great shape to deliver sustained profits growth.
Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Diageo. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.