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Experienced Investor

Stock of the week: Diageo

Joanna Faith
Written By:
Joanna Faith
Posted:
Updated:
31/10/2016

Ian Forrest, investment analyst at The Share Centre, picks beverage giant Diageo as stock of the week for investors wanting a lower level of risk.

Global alcoholic beverage company, Diageo, should continue to benefit from the weakness in sterling as it is a major exporter of whisky and derives a significant amount of its income from overseas. The group pleased the market with its full year figures in July, as it showed a welcome return to growth in one of its most important markets, North America. Sales there grew 3%, and were up 3% in emerging markets as a whole. Furthermore, organic net sales for the group rose 3% to £10.5bn with operating profit up 2% to £2.8bn.

With its enviable portfolio of global brands, including Guinness, Baileys and Captain Morgan, the group trades on a 2017 PE of 21 and a dividend yield of 3.0%, which is about average compared to peers Remy Cointreau and Pernod Ricard. As the company continues to grow in the US, it is also concentrating on geographical diversification with exposure to other large, developed markets such as the fast-growing emerging markets in Asia and Africa.

We continue to recommend a “Buy” on Diageo for investors wanting a lower level of risk. This is due to the strength of its brands, resilient sales in the US market, as well as its excellent long-term prospects for emerging markets. Given the recent rise we would suggest drip feeding into the stock.