Have £1,000 to invest? I would put it in FTSE 100 stock Diageo

Diageo plc’s (LON: DGE) share price has run up quite a bit in the recent months, but I think there is still a substantial case for investing in it.  

| More on:

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.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

FTSE 100 beverages giant Diageo’s (LSE: DGE) share price has performed superbly during this year, rising steadily since February and reaching an all-time high during the past week. The obvious question that makes me curious as an investor is – can I still invest in the share and be assured of steady, long-term gains or is it better to wait for a correction and then invest?

Let’s find out.

Change is in the air

To assess its long-term prospects, it’s essential to consider structural changes on the horizon. And as I have been saying in my recent articles, disruption is fast becoming the name of the game. A shift towards a cleaner, healthier world is driving innovations across industries like petroleum and tobacco. Alcohol isn’t far behind, with a growing market for non-alcoholic drinks and the rise of weed-based products, as cannabis regulations are relaxed.

According to the UK’s Office for National Statistics, only 57% of adults over 16 consumed alcohol in the week before it conducted its 2017 lifestyle survey, down from 64% in 2005. The percentage of those embracing teetotalism has also increased. Diageo’s own Drinks Report 2019 acknowledges the need for more innovation in the ‘free-from’ market. But it has been thinking this way for some time and it invested in the non-alcoholic drinks company Seedlip back in 2016.

In the US, its biggest market, cannabis is becoming alcohol’s competitor, and seeing fast market expansion. While past reports have suggested that Diageo is mulling a market entry, no commitment is visible yet. According to my assessment of the reports, the producer of popular alcohol brands like Guinness, Gordon’s and Pimm’s will most likely throw its hat in the ring sooner rather than later.

Immediate prospects are healthy

It’s worth noting, however, that the ‘alternative’ drinks markets is still quite young compared to the alcohol market, the firm’s main revenue generator. But taking or mulling steps now is a move in the right direction that should hold Diageo in good stead when that alternative segment does become larger. In the interim, it is very comforting for the investor that the company is showing strong and steady performance.

In talking about the company’s recent performance, CEO Ivan Menezes said: We are on track to deliver our medium-term guidance of 175bps of organic operating margin expansion for the three years ending 30 June 2019 and our expectation of mid-single-digit net sales growth over this period is unchanged.” And the latest results released at the end of January backed up this view, with increases in both net sales and operating profits, leading to the sharp rise in the share price since then.

Progressive policies

The company is also rolling out progressive policies like the newly-announced, generous, fully-paid 26 week maternity and paternity leave. Of course this isn’t a justification to invest, but I feel better putting money into shares of a company that is trying to be a better employer.

The question remains, however, is now a good time to invest? Yes, but I would put in just £1,000 now and wait for dips to invest more, especially since its 12-month trailing price-to-earnings ratio at 28x suggests it isn’t pricey compared to its global peers like Heineken.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Manika Premsingh 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.

More on Investing Articles

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

The market is wrong about this FTSE 250 stock. I’m buying it in April

Stephen Wright thinks investors should look past a 49% decline in earnings per share and consider investing in a FTSE…

Read more »

Black father and two young daughters dancing at home
Investing Articles

1 FTSE 250 stock I own, and 1 I’d love to buy

Our writer explains why she’s eyeing up this FTSE 250 growth phenomenon, and may buy more shares in this property…

Read more »

View of Tower Bridge in Autumn
Investing Articles

The FTSE 100 is closing in on 8,000 points! Here’s what I’m buying before it’s too late!

As the FTSE 100 keeps gaining momentum, this Fool is on the lookout for bargains. Here's one stock he'd willingly…

Read more »