Stock market

Should I buy more Diageo shares for my ISA in June?

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My ISA has a very frustrating hold. Diageo (LSE: DGE). Shares of FTSE 100 The Spirit giant has fallen 20 percent over the past five years and 33 percent since the start of 2022.

I am now wondering what to do. Should I persevere or double down? Or even sell and move on? Here are my thoughts right now.

What is happening?

Like many companies, Diageo has been hit by soft consumer spending as inflation and high interest rates weigh on budgets.

In its biggest market, North America, spirits have long been weak, with evidence of a decline from the kind of premium brands that Diageo is known for.

Meanwhile, its Latin American and Caribbean territory has been particularly weak. Sales there are expected to decline by 10-20 percent for the current fiscal year (which ends June 30).

Another thing here is that the market is in a wait and see mode on management. New CEO Debra Crews is about to put her foot under the table after the firm’s chief financial officer resigned in May.

Analysts are not predicting any growth this fiscal. However, management is still guiding for medium-term organic revenue growth of 5-7 percent annually. It seems too ambitious at the moment.

Overall, there is a lot of uncertainty surrounding Diageo’s growth prospects, leading to weak sentiment for the stock. It is trading at a forward price-to-earnings (P/E) ratio of around 18, which is quite low by its own standards.

A better long-term story

Given all this, why am I still a shareholder? Well, there are a few reasons. One is the sheer depth and quality of Diageo’s portfolio. Its three largest whiskey categories include leading brands (Jonny Walker), beer (Guinness) and wine (Don Julio And Casamigos).

Second, there is a long-term global trend of premiumization, whereby consumers are choosing to drink better, not more. That is, consumers are increasingly willing to pay for higher quality products perceived as having better taste, ingredients, or brand value.

Diageo owns 34% of Moët Hennessy, the wine and spirits division LVMH, as well as champagne and cognac. And while their sales are slow right now, I don’t think it’s a bad bet in the long run.

Finally, Diageo set an ambitious target of increasing its total beverage alcohol market share in 2020 from 4% to 6% by 2030 (a 50% increase).

By 2022, it had a 4.7 percent share and is still more than half a decade away from reaching its target. According to the firm, a 50 percent increase, however, would equate to about 30 billion new individual drinks globally in that period.

So the growth story appears far from over, especially with an estimated 600 million new legal-age drinkers entering the market by 2030.

my trick

On balance, I’m still going to hold onto my shares. The company is scheduled to report full-year results at the end of July. I will wait to see how things progress.

If the update is positive, I can increase my holding. If not, I will reassess my options.

In the meantime, I think there are better opportunities for my portfolio in June.


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