The Diageo (LSE: DGE) share price jumped in value last week due to the suspension of Scotch whiskey tariffs between the US and UK. I think this is a massive development for the business. Therefore, I would buy the stock despite its recent positive performance.
Since the beginning of March 2020, the stock has increased in value by 5%, and over the past five years, it’s up 57%, excluding dividends.
Of course, past performance should never be used as a guide to future potential. However, following the stock’s recent performance, I’ve been taking a closer look at the Diageo share price to see if it could be worth adding the stock to my portfolio after recent declines.
One of the best stocks to buy now?
The parent company of brands such as Johnnie Walker, Crown Royal, Smirnoff, Cîroc, Casamigos, and Guinness, Diageo is a FTSE 100 stalwart. Over the past few decades, the business has grown into a global drinks giant, with exposure to almost every corner of the alcoholic beverage market.
The pandemic has been a mixed blessing for the business. While sales to hospitality businesses have declined, the group has benefited from consumers drinking more at home. Consumers have also been willing to pay more for premium products. Diageo has made the most of this trend.
Thanks to the tailwinds outlined above, sales in North America, its largest and most profitable market, rose 12.3% in the last six months of 2020.
I think this performance showcases the fact that the drinks giant is well-placed to succeed in all market environments. That’s why I believe this is one of the best stocks to buy now.
Diageo share price challenges
Of course, all companies face challenges, and this group is no exception. In most markets, alcohol is a highly regulated product. Some countries actually banned the sale of alcohol during the pandemic. What’s more, in India, one of Diageo’s key growth markets, alcohol consumption has been widely condemned. These risks could impact the company’s growth.
It may also face challenges from rising commodity values. These would reduce profit margins and may lead to decreased sales if the group has to increase prices. Potential tariffs and trade wars are another concern. Tariffs on Scotch whisky have gutted the trade between Scotland and the US over the past year. There’s been a suspension of these this week, but they could always return.
Still, despite these risks, I think the Diageo share price has a bright future. That’s why I would buy the stock for my portfolio today. It’s impossible to tell the future, but I believe that 10 years from now, consumers will still be drinking products such as Guinness and Smirnoff vodka.
Therefore, despite the stock’s recent setback, I would buy the stock for the long term.
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Rupert Hargreaves owns shares in Diageo. 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.