DEO - Diageo Still Fits In A Diversified Portfolio

2024-07-20 05:21:36 ET

Summary

• Diageo is the market leader in spirits and has historically been valued at a rich Price to Earnings Ratio.
• Since December 2021, its stock price is in decline due to internal setbacks with inventory and consumer shifts after the pandemic.
• If the company is able to grow at its historical level, investors should have a decent return due to its growing Net Income, Dividends and Buybacks.
• Moreover, investors could be richly rewarded if the company grows above market and interest rate cuts come sooner rather than later.

Diageo ( DEO ) has been on my radar for a long time. The name may not be a household name, but the brands definitely are, including some well-established like Guinness, Johnny Walker and Don Julio, and some up-and-comers like Casamigos ( known as George Clooney's Tequila ) and Aviation Gin ( known as Ryan Reynolds' Gin ). Somehow I never managed to deep dive into Diageo's financials because I would see its historical Price to Earnings Ratio (P/E) and think that 20 to 25 was too rich - even knowing that a company with those kinds of brands will likely never be cheap. After a significant decline since its recent peak in December 2021 and a current PE of 17, I thought it was time to give it a chance....

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