As a long-term investor, the weekend is always a great chance for me to turn off and ignore market noise. It is much easier than on some volatile weekdays when I’m tempted to check up on the FTSE 100 and my portfolio for movement.
Luckily, with the long weekend on its way, I get an extra day to reflect on my portfolio without market movement distracting me. And this weekend, I’ll be deep-diving into these two companies to see if I should buy shares.
Diageo (LSE: DGE) has long been one of my favourite holdings — and it’s not just because it owns Guinness. The FTSE 100 share is a strong business that owns some of the most well-known brands on the planet. In the past 12 months, Diageo’s share price has risen more than 18%, from 2,860p to 3,390p today.
There are a number of reasons why I would consider increasing my position in Diageo. As summer rolls in, I’m getting more bullish on Diageo’s position among reopening stocks. Having taken a hit last year as Covid-19 shut restaurants and bars, it has since shown remarkable resilience. Home consumption saw first-half 2021 sales increase 0.9%, including a 10% rise in the UK. This allowed Diageo to maintain a strong £1.58bn profit year-on-year. Now, with vaccinations rolling out and the economy reopening, the company expects operating profit growth to increase by at least 14% this year.
My biggest worry when it comes to Diageo is its rising net debt, which sits at almost £15bn as of December 2020. Should interest rates rise, it could cause the company a headache and reduce its ability to return shareholder value.
Despite this, Diageo remains one of the strongest brands in the world. As life returns to normal and people look to have a good time, I’m thinking that there’s still a lot of potential for its share price.
I’m moving away from alcohol and over to telecommunications for my next stock pick. Vodafone Group (LSE: VOD) has been on my portfolio shortlist for years, but I’ve never taken the plunge. Despite being a top FTSE 100 income stock, I always felt it was too expensive for me.
The leading British telecom giant has seen its share price remain flat in the past 12 months — albeit with some dips and surges in between. At 129p a year ago, now sitting at roughly 128p, there has been little to write home about.
However, Vodafone’s share price fell 10% last week thanks to investor skittishness following its quarterly earnings report. I, for one, actually found the company’s plans quite exciting. CEO Nick Read outlined the company’s plan to invest heavily in its network amid the 5G boom. Despite this resulting in short-term cash burn, I am excited that the company is so open about self-investment. Covid-19 has accelerated global digitisation greatly, meaning demand for the pipes that run the broadband system will grow enormously.
But that doesn’t eliminate the business’s already massive debt pile, which sat at nearly £40bn at the tail end of 2020. This will only be made more worrisome by the company’s 2.6% revenue deficit in 2020.
However, its forward-thinking plans have got me excited, while Vodafone’s recent price drop makes it a more enticing investment opportunity for me.
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Jamie Adams 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.