Given the stock market is trading at a relatively high level right now and there are a few warning signs a market correction may not be far off, it’s probably not the best time to be tipping a lot of money into stocks, in my opinion. I think there could be more attractive buying opportunities ahead.
That said, during October, I did drip-feed a little bit of money into the market. Here’s a look at a FTSE 100 stock and a FTSE 250 stock I bought for my portfolio.
The first I bought was FTSE 100 alcoholic beverage company Diageo (LSE: DGE), which owns a world-class portfolio of brands including Johnnie Walker, Smirnoff, and Tanqueray. This is a stock I’ve owned since late 2016. I took the opportunity to add to my holding near the 3,100p level – nearly 15% below the stock’s 52-week high.
There are a number of reasons I see Diageo as a great stock to own for the long term. For a start, it’s a dependable company that’s relatively recession-proof. People tend to drink alcohol in both the good times and the bad.
Secondly, the group’s emerging market exposure provides an attractive long-term growth story. Due to rising wealth across the world’s developing countries, the company believes an additional 750m consumers will be able to afford its spirits in the next decade.
Thirdly, Diageo has a brilliant dividend growth track record, having registered over 20 consecutive annual dividend increases to date. I’m expecting more increases in the years ahead.
At 3,100p, Diageo shares weren’t exactly a bargain (forward P/E 22, prospective yield 2.4%). However, with the stock trading nearly 15% below its recent highs, I pulled the trigger and boosted my holding.
Another stock I bought in October was FTSE 250 IT group Softcat (LSE: SCT), which specialises in helping customers with networking, cloud, and cybersecurity solutions. I bought the shares at 935p.
This is a stock I’ve been bullish on for quite a while. For example, in November last year, I said SCT could potentially “smash the FTSE 100” over the next decade. So far, it’s doing a pretty good job of that – since that article, the shares are up nearly 60%, versus a 5% gain for the FTSE 100. I’m kicking myself for not buying this one earlier.
The reason Softcat shares appeal to me is that the company operates in a high-growth industry (cloud, cybersecurity, etc.) and it’s growing at a prolific rate.
Just look at the group’s final results released on 23 October. For the year ended 31 July, revenue surged 24.4% and basic earnings per share rose 24%. That kind of growth makes Softcat one of the fastest-growing companies in the entire FTSE 350. If it can keep growing at that speed, the stock could potentially become a FTSE 100 constituent within a few years.
At 935p, Softcat’s forward-looking P/E was around 25.8, and its prospective yield was 2.8%. Those metrics looked quite fair to me given the company’s growth rate, so I added the stock to my portfolio. This is another stock I plan to hold for the long term.
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Edward Sheldon owns shares in Diageo and Softcat. The Motley Fool UK has recommended Diageo and Softcat. 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.