Now may look like a bad time to buy FTSE 100 shares, but I beg to differ. Today’s turmoil offers a brilliant buying opportunity, but with three provisos.

At The Motley Fool, we never like to waste a stock market crash. Or even a dip, like the one the FTSE 100 is suffering at the moment. 

The index of top UK shares has been relatively resilient in 2022. It is down 8.09% year-to-date while the US S&P 500 has crashed 23.49%. Yet the FTSE 100’s relatively smaller drop is still throwing up lots of share buying opportunities for me.

FTSE 100 offers me great value

When an individual stock falls sharply in value, I tread carefully. Usually that’s due to a bad piece of company news, such as a profit warning, reduced dividend, or some other nasty that weighs on its prospects.

When the whole FTSE 100 falls, it’s a different matter, as good companies are sold off with the bad. Investors are fleeing risk right now, as today’s problems aren’t going away soon. Post-Covid supply shortages, war in Ukraine, and (crucially) rising interest rates are combining to destroy investor sentiment.

These problems will hit some sectors harder than others. Housebuilders such as Barratt Developments will suffer as rising mortgage rates hit demand. So will asset managers such as Schroders, as markets go haywire. Supermarkets like Sainsbury’s are also suffering, as customers buy less or trade down.

By contrast, luxury goods maker Burberry Group is on safer ground as the wealthy are less affected by the cost-of-living crisis. So is spirits maker Diageo, as its customers need a stiff drink right now.

I’m focusing my attention on companies that have been hit hardest, as their share prices have fallen most. They offer a tempting combo of dirt-cheap valuations and astonishing yields. I’ve just taken a punt on housebuilder Persimmon. I’m worried I may regret this, but found its 19.49% yield and valuation of just 4.81 times earnings too ridiculous to resist.

I’m now caught between buying Tesco for long-term income and growth, or investing in Rolls-Royce shares in the hope they will lead the charge when markets recover.

Three ways I reduce risk

The big risk is that markets could fall further from here, but I’m happy to take that chance for three reasons. First, it’s impossible to buy right at the bottom of the market. Today’s lower prices are good enough for me.

Second, I’m building a balanced portfolio of FTSE 100 stocks on top of that, to turbo-charge my growth. I aim to hold at least a dozen, so if one or two fail to deliver, hopefully the others should more than compensate.

Finally, and most important, I’m only buying shares that I plan to hold for the long term. That means at least 20 years, which should give plenty of time for the FTSE 100 to rebound from its current troubles.

Sometimes I have to steel myself to click the ‘buy’ button but if I wait until after the FTSE 100 has recovered, then the same stocks should cost a lot more than they do today.

The post I don’t care if FTSE 100 shares fall further, I’m buying them today appeared first on The Motley Fool UK.

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Harvey Jones doesn’t hold any of the shares mentioned in this article. The Motley Fool UK has recommended Burberry, Diageo, Schroders (Non-Voting) and Tesco. 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.

If I had as much as £10,000 to pump into a Stocks and Shares ISA right now I’d be looking to load up on top FTSE 100 dividend shares.

After years of trailing major indices such as the S&P 500, London’s blue-chip index is showing it’s made for tough times. US tech stocks may have cashed in on the cheap money era, but FTSE 100 shares now offer bruised investors a welcome safety net.

Investing goes in cycles and the tech splurge lasted beyond its natural term. That came as central bankers piled on the stimulus during the Covid crisis. Now investors are prioritising ‘value’ stocks, dividend-paying companies trading at low valuations. 

My ISA line-up

The FTSE 100 is full of them and I’d start by exploring these 10 companies. All have risks, but offer big opportunities too.

Insurer Aviva has delivered little share price growth in recent years. But it’s a dividend aristocrat paying income of 9.95%. Trading at a dirt-cheap 6.8 times earnings, it’s hard to resist.

Barclays is even cheaper at just 3.7 times earnings, while yielding 4.28%. Sticking with financials, I also like Lloyds Banking Group, cheap at 5.5 times earnings with a 4.82% yield (and future dividend growth).

The financials sector is being shaken by the gilt crisis, while rising interest rates could squeeze both small business and retail customers. But I reckon those risks are reflected in their rock-bottom valuations.

I’d also include transmissions giant National Grid. Frankly, this is a stock I’d buy at any time, as a core portfolio holding. Today it yields 5.77% and looks fair value at 14.4 times earnings. It’s a solid long-term buy and hold for my ISA.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

Higher yields

With that as security, I’d take a bigger punt and buy a housebuilder such as Persimmon that yields a ridiculous 19.37%. Although I expect the dividend to be cut sooner rather than later, that won’t be a disaster given today’s starting point. House price crash fears are priced in at a valuation of 4.9 times earnings. At least, I hope they are.

Mining giant Rio Tinto is the second highest yielder on the FTSE 100 offering 14.21% and trading at 4.2 times earnings. Chinese demand for commodities is slowing and the dividend may be reduced at some point. Now still looks like a great entry point for contrarians like me. I’d also consider gold miner Fresnillo. It may benefit when inflation easies, the US dollar softens and the gold price recovers.

Clothing retailer Next will obviously suffer as discretionary consumer spending falls. But it looks better placed than most, and I’d consider it for my ISA too. Then I’d buy Unilever, because I’ve never seen it this cheap at 17.2 times earnings (it’s usually around 24 times) while yielding 4.42%.

Finally, I’d include spirits giant Diageo in my top 10. Yes, it looks expensive trading at 24.1 times earnings while the yield is just 2.08%.But it’s a solid, recession-proof business and they come at a premium in these troubled times.

The post How I’d invest £10k in a Stocks and Shares ISA today appeared first on The Motley Fool UK.

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• Here’s what £15,000 invested in Taylor Wimpey shares on Thursday is worth today…
• How much would it take to turn an ISA into a £1,000-a-month passive income machine?

Harvey Jones doesn’t hold any of the shares mentioned in this article. The Motley Fool UK has recommended Barclays, Diageo, Lloyds Banking Group and Unilever. 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.

Spirits maker Diageo (LSE: DGE) has been one of my favourite FTSE 100 stocks for the last decade or so. I held it for several years in that time, and sold at a 70% profit. I wish I hadn’t, frankly.

At that point, I hadn’t grasped the point of long-term investing. Today, I buy FTSE 100 stocks with the aim of holding them to retirement and beyond. I reinvest my dividends to pick up more stock today, to generate even more passive income when I retire.

I’ll soon be buying Diageo

Next time I buy Diageo – and there will be a next time, soon – it will be with that goal in sight. This is a stock for all seasons, and recent performance has underlined that.

Over the last 12 volatile months, Diageo shares have climbed by 8.45% while the FTSE 100 as a whole fell 3.93%. Measured over five years, Diageo is up 56.65%. The FTSE 100 is down 6.70% over the same period.

Diageo has thrashed the index over both time scales. It has a habit of doing that. Many see this as a defensive stock, because alcohol sales tend to hold up in a recession as people drown their sorrows. It does just as well in the good times, when drinkers have something to celebrate. Few FTSE 100 stocks can boast such an impressive double selling point.

In July, Diageo posted a 21.4% jump in full-year sales to £15.5bn, with double-digit growth across all regions. That’s incredible, given that it operates in almost every country in the world. Demand was “resilient”. Better still, its premium brands have pricing power, allowing Diageo to pass on extra costs to consumers.

Those figures were enhanced by a post Covid bounce, as lockdowns eased and drinkers could get out of the house. Then again, people carried on drinking scotch, tequila, and beer at home during lockdown. What did I say about the other being a stock for all seasons?

Let’s not get carried away, because Diageo faces headwinds, too. CEO Ivan Menezes recently warned of “significant cost inflation, a potential weakening of consumer spending power and global geopolitical and macroeconomic uncertainty”. 

Here’s what’s holding me back

A big downside for an income investor like me is that its dividend yield is well below the current FTSE 100. Today, the average stock on the index yields 4.15%. Diageo would give me just half that at 2.02%. The FTSE 100 trades at around 14 times earnings, but Diageo is valued at a thumping 25.17 times.

I have followed Diageo long enough to know this is par for the course. It always has a relatively low yield and high valuation. That’s the price of popularity, and the reason I wouldn’t buy it today.

I don’t think it’s overpriced, given its quality. My issue is that right now, a host of other FTSE 100 stocks are trading at dirt-cheap valuations, while also offering mind-boggling yields. It’s an amazing opportunity and I’ll start by purchasing them first.

I’d do anything to hold Diageo in my portfolio, but I wouldn’t turn my nose up at today’s amazing FTSE 100 bargains.

The post I would do anything to hold Diageo in my portfolio (but I won’t do that) appeared first on The Motley Fool UK.

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• £15,000 invested in red-hot Scottish Mortgage shares 1 month ago is now worth…
• Are IAG shares the ultimate FTSE 100 volatility play? 
• Will the stock market go off like a rocket on Monday?
• Here’s what £15,000 invested in Taylor Wimpey shares on Thursday is worth today…
• How much would it take to turn an ISA into a £1,000-a-month passive income machine?

Harvey Jones doesn’t hold any of the shares mentioned in this article. 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.

I have zeroed in on two shares for my portfolio. These are businesses that I think show growth potential and can generate cash even in tough economic conditions.

Grocer with sky-high dividends

At current levels, I think the Sainsbury (LSE:SBRY) share price is one of the best bargain options in the FTSE 100 right now. AT 209p, it is trading at a price-to-earnings ratio of 7.2 times and a lofty 6.2% yield.

Yes, the company has been in the news this week after last quarter’s sales dipped 4%. But this was in line with board expectations and the profit estimate for the year remains unchanged at between £630m and £690m. While this is lower than the 2021-22 profits of £730m, the company has a few plans up its sleeve. 

Given the rising raw material costs, the board will inject £500m over the next 24 months to keep product cost inflation at the minimum. I think this move will help the grocer gain footing on Tesco and grow its current 15% market share as inflation runs rampant.

Despite small margins, if profit estimates are met, the company expects to generate retail free cash flow of at least £500m in 2022-23, similar to last year’s £503m. I think the board will keep the payouts flat next year given tough economic conditions. But a healthy 5%+ yield looks likely, which I see as a positive.

However, the impact of inflation will hit this sector hard. Large grocers like Sainsbury will lose out to discount retailers, even if current prices are maintained. And this will inevitably eat away at Sainsbury’s revenue. 

But overall, this FTSE 100 firm looks well-set to navigate choppy waters. I am bullish on Sainsbury shares and will consider them for my portfolio in 2022  if signs of a market recovery become stronger. 

Alcohol heavyweight

Diageo (LSE:DGE) is a global alcohol aggregator that owns extremely popular brands like Smirnoff and Johnnie Walker. The FTSE 100 company has adopted an emerging market strategy, focusing on growing regions like India and China.

Down 14.8%, I think the Diageo share price is going through a rare lull given its steady rise over the last five years. And looking at the share price action over the last two decades, the company has been on an incredible upward trajectory. 

And I think this growth could continue given its fast expansion policy. Diageo recently purchased Vivanda, owner of a flavour matching technology. This will allow users to build a flavour profile and choose spirits based on suggestions. I think the company is adopting digital sales and shows a lot of growth potential.

Tough regulations and local competition will grow with expansion. And the company will have to deal with the rising tide of health-conscious youth who are choosing to go alcohol-free in record numbers. 

However, I think the company is well-placed to navigate this given its size, range, and future plans. This FTSE 100 share is not a bargain on paper at 3,525p, but I think the company offers a lot of value and growth. This is why I will wait for a drop in share price before investing.

The post 2 top FTSE 100 shares to buy before a new bull market appeared first on The Motley Fool UK.

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Suraj Radhakrishnan has no position in any of the shares mentioned. The Motley Fool UK has recommended Diageo and Sainsbury (J). 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.

These two FTSE 100 dividend stocks have relatively low yields but that doesn’t put me off, they suggest solid, steady businesses and I’d buy them today.

Spirits giant Diageo (LSE: DGE) and consumer goods specialist Unilever (LSE: ULVR) rarely yield more than 3% a year. Yet I reckon both are top dividend and growth stocks. The main reason their yields are usually low, is that they have delivered healthy share price growth as well.

Right now, Diageo’s yield is low even by its standards, at 1.87%. That is partly explained by the fact that the Diageo share price has climbed an impressive 30% in the last year. 

By contrast, Unilever’s dividend yield is relatively high by its standards, just over 4%. That’s mostly down to the floundering Unilever share price, down almost 15% over 12 months.

Low yields, high growth prospects

High dividend yields catch the eye, of course. There are some real thrillers out there right now. However to me, Diageo and Unilever’s solid, steady payouts suggest healthy businesses with strong long-term growth prospects.

Diageo recently reported a 15.8% rise in net sales to £8bn over six months, with impressive margin growth too. While inflation inevitably hurt, this was “more than offset” by supply productivity savings and price increases.

Chief executive Ivan Menezes warned of further near-term volatility. He named “potential impacts from Covid-19, global supply chain constraints and rising cost inflation”. Pausing exports to Ukraine and Russia will inevitably hit sales, but the outlook remains promising.

My major worry is that this is a bad time to buy Diageo, as its price/earnings ratio is now 32.88 times earnings. Typically, it trades at around 25 times, so that’s a premium price. Then again, it’s a premium dividend and growth stock.

Unilever has been trying to add some zip through acquisitions, but stumbled over its failed bid for for GlaxoSmithKline‘s consumer health business. It has ruled out further M&A for now, and is cutting 1,500 management jobs globally to save cash and boost operational performance.

Two of my favourite dividend stocks

Despite that, recent full-year turnover of €52.4bn beat expectations, rising 3.4%. Management anticipates underlying 2022 sales growth to range from 4.5% to 6.5%.

Investors are still being rewarded though, with the dividend per share rising 3.1% in 2021. Unilever also completed €3bn of share buybacks. By its standards, the stock is dirt cheap, trading at 15.64 times earnings (against 23 times typically). While management faces challenges, I think that makes now a tempting entry point.

These two FTSE 100 dividend heroes both have pricing power, thanks to their unmatchable array of established global brands. With Diageo, Baileys, Smirnoff, Johnnie Walker, Guinness and Tanqueray all spring to mind. Unilever’s top brands include Ben & Jerry’s, Knorr, Magnum, Marmite, PG Tips, Comfort, Domestos, Lynx, Persil and many more. 

I’d buy both dividend growth stocks today, despite their wildly differing valuations. But if I could only choose one, I’d choose dirt-cheap (by its standards) Unilever.

The post I’d buy these 2 top blue-chip shares in April for long-term dividend growth appeared first on The Motley Fool UK.

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Harvey Jones doesn’t hold any of the shares mentioned in this article. The Motley Fool UK has recommended Diageo and Unilever. 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.

An airline stock ready to return to the skies

International Consolidated Airlines Group (LSE:IAG) experienced considerable turbulence during the pandemic. The IAG share price took a journey from 668p in January 2020 to penny stock levels, before eventually arriving at 140p today.

The outlook for IAG shares appears rosy to me, with the company likely to benefit from continued relaxations in travel restrictions. According to IATA, 38 of the world’s top 50 travel markets are now open to vaccinated travellers without quarantine — up from 28 just a month ago.

Indeed, this summer, the airline aims to fill 85%-90% of its 2019 capacity. CEO Luis Gallego foresees “significant profits” for 2022. This would mark a positive change in IAG’s fortunes. Last year, the company only managed to cut its pre-tax losses (from £7.8bn to £3.5bn).

At present, I view IAG as one of the cheapest FTSE 100 stocks. Granted, the emergence of a concerning new Covid-19 variant or escalating conflict in Ukraine could derail this hypothesis. Nonetheless, supported by improving financials and a recovering travel market, IAG stock looks like a good long-term buy for me.

A FTSE 100 dividend stock

Asset manager and insurer M&G (LSE:MNG) has one of the highest dividend yields of any FTSE 100 stock at 8.25%. Since it demerged from Prudential in 2019, M&G has delivered strong pre-tax operating profits, namely £788m in 2020 and £721m in 2021.

Other recent achievements include generating capital of £2.8bn in two years and bringing the total value of assets under management to £370bn.

If M&G maintains this performance, I see potential for capital growth for shareholders, in addition to passive income. In my view, this combination makes it a good FTSE 100 stock to beat inflation — currently running at 6.2%.

The firm is not focused on growing its insurance division, which acts as a cash flow bedrock for the business. This could undermine the company’s defensive credentials over time, but I still see value in the M&G share price and bumper dividends.

A Footsie share that consistently beats the index

Drinks giant Diageo (LSE:DGE) has been one of the best FTSE 100 stocks to own over the past five years. Beyond its index-beating returns, Diageo offers investors passive income from its current 2% dividend yield as a bonus.

Diageo delivered an increase in net sales from £11.75bn to £12.73bn for 2021. The company also boosted operating profit to £3.73bn – a 74.6% annual improvement.

Underpinned by intellectual property in an enviable list of brands from Guinness to Smirnoff and a free cash flow in excess of £3bn, the Diageo share price seems to go from strength to strength.

As consumers become more health conscious and possibly reduce their alcohol consumption, there are potential headwinds for Diageo stock. I would still buy it at present, however. My reading of the company’s financials is that demand looks robust.

The post 3 cheap FTSE 100 stocks I’d buy with a spare £1,000 appeared first on The Motley Fool UK.

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Charlie Carman does not own shares in any of the companies mentioned. The Motley Fool UK has recommended Diageo and Prudential. 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.

Investing in the stock market right now takes guts. Awful events in Ukraine combined with a huge rise in the cost of living have sent share prices on a downward trajectory for much of 2022.

That’s why I think it pays to tap into the mentality of those who have seen it all before and still managed to thrive. The first person that springs to mind? 91-year-old Warren Buffett.

Why Warren Buffett?

In case you don’t know, the ‘Sage of Omaha’ is one of the wealthiest individuals on the planet. Importantly for private investors like me, his billionaire status has been built on adopting a strategy that anyone can understand.

Put simply, Buffett buys stock in great companies. According to him, these tend to be businesses that resemble castles that are able to fend off invaders (competition) on a consistent basis, thanks to possessing enviable ‘moats’. The latter might include highly-valuable brands or cost advantages or just being a big fish in a small pond.

But there’s another aspect to Buffett’s strategy, namely how he behaves when the chips are down. The master investor regards inevitable market wobbles as opportunities to buy great stocks that are temporarily on sale. It’s a mentality I’ve tried to adopt over the years and particularly in 2022. I’ll never be as wealthy as Buffett, of course! 

So how might I use this approach now with, say, £20,000 — the maximum amount of cash I’m able to deposit in a Stocks and Shares ISA this year — at my disposal?

5 stocks I’d buy today

From the FTSE 100, I reckon Diageo and Unilever are solid choices. Both boast bursting portfolios of ‘sticky’ brands that consumers will willingly pay for. Their ability to pass price increases on should go some way to helping them navigate through these inflationary times. Supermarket giant Tesco also grabs my interest, thanks to its commanding market share.

From the FTSE 250, Games Workshop seems to tick a lot of ‘Buffett boxes’. The Warhammer brand is incredibly popular around the world, making this very financially disciplined company a leader in a (very) niche market. Out of interest, the shares are down nearly 30% in 2022, as I type. That strikes me as an opportunity to “be greedy when others are fearful“, to quote Buffett. 

iPhone maker Apple is the final pick. Since I’m already locked into its ecosystem through owning a number of its devices, I’m highly likely to stick with the tech titan when the time comes to replace them. I sincerely doubt I’m alone. This brings to light another ‘moat’ quality, namely the hassle involved in switching. It should come as no surprise that Buffett owns a huge slice of Apple already. 

Buyer beware

Naturally, adopting the approach of a highly successful investor like Buffett doesn’t guarantee anything. As we’ve seen, the share prices of even the best stocks can still tumble in the face of unexpected global events.

This is why it’s essential to spread my cash around companies in different sectors. Although a big fan of running a concentrated portfolio, you’d never catch Buffett investing in just one small part of the market. This ensures he never needs to sell in a panic — something that Fools like me should also avoid like the plague.  

The post 5 stocks I’d buy before the ISA deadline using the wisdom of Warren Buffett appeared first on The Motley Fool UK.

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• How much would it take to turn an ISA into a £1,000-a-month passive income machine?

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Apple, Diageo, Games Workshop, Tesco, and Unilever. 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.

However, a combination of positive results and easing restrictions has given IAG new wind over the past few months, with the shares up 8.7% year-to-date. Can this trend continue? Let’s take a closer look.

Encouraging travel data

As mentioned, the global easing of travel restrictions over the past few months has vastly increased footfall across the travel sector. For example, in the first week of 2021, there were 71,738 European flights. Fast forward to the first week of 2022, that number almost doubled to 139,438. In addition to this, Skyscanner – an online travel booking agency – said that bookings for return flights to the UK this summer were up almost 400% in January compared to December.

These numbers have already filtered down into IAG’s business. In its latest trading update, it reported a passenger capacity jump from 21.9% to 43.3% of 2019 levels. In addition to this, its cargo transport has also seen a heft capacity rise, to 73.4% of pre-pandemic levels. IAG releases its full-year results on 25 February and if it sees more results like these, then I would expect the share price to increase further.

There is still significant progress to be made, but it seems that IAG is moving in the right direction. What’s more, Australia announced the reopening of its international borders last week. As confidence in the travel sector grows, the IAG share price could continue to climb.

Headwinds for the IAG share price

The most obvious challenge that IAG must contend with is the continuing threat the pandemic poses. Although restrictions are easing, there is still a high possibility that the virus could cause more disruptions throughout the year. If this is the case, it could place a lid on the growth of the IAG share price.

In addition to this, the pandemic left IAG with over €12bn net debt. This was the case across many other airlines, as the costs of maintaining grounded aircraft piled up. With interest rates creeping up, these debts could be quickly magnified unless addressed soon.

A final risk for the IAG share price is the steep competition that the firm faces from other flight providers. For example, competing airline Ryanair recently announced it would be offering big discounts to incentivise customers. This could draw IAG into a price war, which is the last thing it needs while trying to rebuild its business.

The verdict

Overall, the current IAG share price seem seems to me to be in a good place for growth right now. I think investors are realising the impacts of increased footfall, which is helping push the shares up.

However, with pandemic uncertainty and hefty debts on its plate, I’m not comfortable buying the stock just yet. I’m going to wait for the full-year results, and to see how IAG fares over the course of the next few months, before considering adding it to my portfolio.

The post Is the IAG share price about to take off? appeared first on The Motley Fool UK.

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Dylan Hood has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

Although there’s still a few days left of trading in 2021, I think now’s a great time to review the performance of my top stock for 2021 — FTSE 100 beverage behemoth Diageo (LSE: DGE).

FTSE 100 beater

Despite the stop-start pandemic, supply chain disruption and rising inflation, Diageo investors have had a great year. At the close of play on Christmas Eve, its shares had climbed 36% in value during 2021.

This gain compares very favourably to the index in which Diageo features. Year-to-date, the FTSE 100 has increased 12% in value. That’s certainly not a bad result for those invested in funds tracking the market return. However, it’s yet more evidence that carefully selected shares (combined with a fair dollop of luck) can prove far more lucrative.

Is the FTSE 100 the best benchmark to use though? Given the dearth of companies similar to Diageo in the UK market, one needs to look abroad. In Europe, Pernod Ricard is up by 33% but Heineken Holdings has climbed just 4% in value. In the US, Brown-Forman has fallen almost 8%.

Given this, I think it’s hard to see Diageo’s performance as anything but stellar. In fact, the stock is now at an all-time high.

Why has Diageo done so well?

A good portion of Diageo’s success can be put down to the fact that cashed-up consumers have treated themselves to premium drinks brands to get them through lockdowns. Another reason has been the company’s decision to continue growing its cash payouts.

Investors have also lapped up the bullish outlook put out by CEO Ivan Menezes. Back in November, Diageo announced that it expected organic sales growth to come in between 5% and 7% from 2023 to 2025. As a comparison, growth of 4% to 6% was achieved from 2017 to 2019. 

Still a buy?

Following this year’s solid gains, Diageo’s shares now trade at 30 times earnings. That’s certainly not cheap relative to some shares in the FTSE 100. In fact, it’s far above the company’s own five-year average price-to-earnings (P/E) ratio of just below 24. So, is this stock still worth me buying today?

While I’m not convinced that Covid-19 will disappear in a puff of smoke, a relaxation of restrictions will undoubtedly be good news for the company. Sales at pubs and bars will recover. Investment bank Société Generale believes the company’s growth in the US can continue too. Its price target of 4,500p is 12% up from where we are now. 

Naturally, the bear case is very much the opposite of what I’ve just said: the pandemic drags on and savings start to dwindle without the support of a furlough scheme. In such a scenario — and considering the aforementioned valuation — the recent share price action could reverse. Earlier this month, broker RBC set a price target of 3,100p based on its belief that earnings momentum might be slowing amid low consumer sentiment in the US.

My verdict

Would I buy Diageo’s stock now? I’m not completely against it. I still consider it one of the best in the UK’s top tier, even if the shares do give up some of their gains in 2022. 

That said, I do think there’s potentially better value elsewhere in the market, particularly if I were also looking to build a diversified portfolio that could withstand whatever 2022 throws at it. 

Diageo isn’t my top stock to buy for 2022 but these are. 

The post My top stock for 2021 crushed the FTSE 100. Here’s what I’d do now appeared first on The Motley Fool UK.

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Paul Summers 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.

The fee-hungry financial services industry promotes a message that investors always need to be doing something. As a result, buying and holding even an established FTSE 100 stock for a decade is harder than it sounds.

However, I think long term is how I need to be thinking if I’m to maximise my time (and profits) on the market.

Quality stock

Drinks giant Diageo (LSE: DGE) is one of the best ‘forever’ stocks going in the UK’s top tier, in my opinion. While I don’t own the shares directly, I do have a stake in Lindsell Train Global Equity. This has nearly 10% of its assets tied up in the company.

Diageo has many of the things that I look for. A global presence, an increasingly vast array of premium brands and huge margins. Collectively, these qualities should ensure the company continues growing in the years ahead.

Sure, it’s certainly faced its share of headwinds recently. The closure of drinking dens across the world last year significantly disrupted earnings. Supply chains could cause more hassle in the months ahead.

Nevertheless, the affection consumers have for Smirnoff, Guinness and Captain Morgan lead me to think I could buy and tuck Diageo away for decades and it’ll still be worth a lot more than I paid for it. This is especially true if I choose to reinvest those regularly-hiked dividends.

FTSE 100 outperformer

Scottish Mortgage Investment Trust (LSE: SMT) has been one of the standout members of the FTSE 100. In five years, its share price has surged 371% in value. In stark contrast, the index has climbed just 8%. If anything, it shows the potential gains on offer from actively selecting stocks over hugging a benchmark. 

Much of SMT’s outperformance has been down to its heavy tilt toward disruptive tech stocks like Amazon and Tesla. Unfortunately, many of these US-based companies now trade on eye-watering valuations. Should interest rates finally push higher in 2022, these could be the stocks investors jettison first.

Predicting exactly when this will happen is a fool’s errand, of course. This is why I intend to continue drip-feeding my capital into the trust for some time to come.

At £21bn, SMT won’t double in value overnight. Bar the odd (inevitable) period of downward selling pressure, I see no reason why this top tier constituent won’t continue outperforming the FTSE 100. 

Cleaning up

Its line of work may not be pleasant but pest-control and hygiene firm Rentokil Initial (LSE: RTO) is another blue-chip stock whose value should continue rising in the years ahead.

Like the other shares mentioned, RTO doesn’t present as a bargain. In fact, a P/E of 38 suggests the risk/reward trade-off isn’t in my favour. Then again, the price paid for a stock arguably becomes less important if an investor’s confidence in the outlook and intends to retain their holding for many years.

As star manager Terry Smith argues: “Over the long term, it’s what the company does that makes money, not what you do“.  And based on its most recent update, RTO looks like it’s cleaning up. Ongoing revenue rose 10% to £750.2m in Q3 as an end to Covid-19 restrictions lifted demand.

Today, I’d be comfortable buying the stock and holding for a decade. If a market crash happens, I’d be backing up the truck… 

The post 3 FTSE 100 growth stocks to buy and hold for 10 years appeared first on The Motley Fool UK.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Paul Summers owns shares in Lindsell Train Global Equity and Scottish Mortgage Investment Trust. The Motley Fool UK has recommended Amazon and 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.