Diageo PLC (DEO)

It was a great company when it went through their acquisition phase. However, about three years ago they ran out of big companies to buy. Now they have to decide if they going into other beverage markets or decide to cut costs to grow earnings. It still looks too expensive and he would stay away.

He thinks the spirits industry is in a good position now. Scotch whiskeys are in short supply, other whiskeys are selling well. Diageo is the world leader in this. He will buy this when it hits the right price. He discussed cannabis with them a few months ago. They have made initial investments in cannabis stocks but are still taking a wait-and-see attitude. He expects them to acquire a cannabis company later, after the dust settles.

Up until about 2015, this was driven by acquisitions. Since that time, there are not many assets left to buy that would be large enough to move the needle. Because of that, this company has become a cost cutting story. At this point in the cycle, there are other places he would prefer.

(A Top Pick Dec 16/16, Up 29%) Spirits have been very strong. Demand for scotch has increased. They have Guinness which is not growing very fast. China has come back for them.

(Top Pick July 25/16, Up 7.59%) It has been subject to BREXIT. It benefited when the pound was getting hit. When the pound went down the costs went down. Sales continue to rise in North America.

This is in the consumer staples sector, an extremely expensive space with very limited growth. It is perceived as one of the better companies, but he thinks of it as average among distillers. A lot of growth in this sector came from premiumization of their products and from growth in emerging markets. Emerging markets have not been able to provide the kind of growth that this company has been looking for.

This is a drinks company and their big thing is Johnny Walker and a couple of others. Trading at about 20X earnings. He likes the industry, and it throws up a lot of free cash. They’ve had some trouble with margins in the emerging markets area, but have sorted those out, so there should be better margins going forward. He likes the stock.

Consumer staples, as a group, have been a little sloppy over the last number of months. Some of the more economically sensitive sectors were behaving a little better. This company has a wonderful portfolio of various brands for alcohol, and has been lifting quite nicely since December. A European company and European markets have been behaving much better. Breadth is expanding there as well as in the US. This is a leading stock within the group, so he doesn’t think you are going to get hurt.

A massive conglomerate. To him, it sits in the sweet spot of what he is looking for. A solid consumer staple and great brand recognition. Pays a decent dividend. It has had a good run, but he likes the prospects going forward. Not cheap, but the predictability of earnings continues to make this a Hold. He thinks it can trade up at $125-$130.

He is seeing improving earnings for the 1^st time in about 4 years. China is definitely improving for them. They are very strong in the US. The scotch and cognac business is doing very well. This is not an expensive consumer staple company, and is one of the few he is adding to right now. Dividend yield of 3.56%. (Analysts’ price target is $123.65.)

Has an amazing collection of world-class brands. However, a low growth company with strong dividend yield and growth. Not trading at a cheap price/earnings ratio. Consumer stocks have had a great run because of their dividend, and they are vulnerable to rising rates. Dividend yield of just over 3%.

Market Call Minute. Large drinks manufacturer and they are growing on their beer side.

Technically this has had a bit of difficulty in the last week or so, because it is one of those stocks that has a tendency to reach a very important low around this time of year. Seasonal strength is between now and about the 1^st week in January. You want this to get above its current level, but the decline in the British pound is having a short-term impact. It is more than what is happening with Diageo itself.

Always struggles to understand why investors pay such a high premium for certainty. Businesses where organic growth is abysmal at 1% or 2%, investors willing to pay 18 or 20 times, it is really just better than a bond type of investment.

UK based and the largest liquor company in the world. He recently came back to this one because it is a beneficiary of Brexit. They have cut costs. They will benefit from the lower pound, but it will not be reflected in the product prices, increasing margins.