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It is not an easy task to get a place in the FTSE 100 IndexCompanies that do this are usually very well established and unlikely to fail.
My portfolio consists mainly of companies from the index: solid growth stocks and stocks with reliable dividends. Unlike volatile small-cap stocks, they do not require much attention from me. I rarely monitor them, trusting that they will maintain stability and growth over the long term.
However, there is one stock that is dragging down my overall returns. I have been bullish on it for some time, but my patience is wearing thin. With losses of almost 25% over the past year, I wonder if it is time to admit defeat.
Let us consider their prospects.
Curing a hangover
Two years ago, someone asked me what my three favorite stocks were, the spirits giant… Diageo (LSE: DGE) would have been among them. But since August 2022, the Smirnoff and Guinness The producer has been in decline, losing more than a third of its value.
Even the 3% dividend yield does little to ease the hangover from these losses.
Much of this is a result of declining sales in Latin America and the Caribbean (LAC), where the lingering effects of Covid-19 have hurt the economy. Cash-strapped consumers opting for lower-cost alternatives appear to have shunned popular brands. But with inflation falling and the economic situation improving, a recovery was expected this year.
There was no such luck
In its July results, sales fell for the first time since 2020. Despite an 8.2% rise in reported operating profit, the share price fell 10% on the day. The situation is so bad that analysts are starting to wonder whether Diageo could become a potential takeover target.
Despite the decline, it still controls a 75% sales share in the measured markets, with growth in most regions. Since losses are concentrated mainly in the Latin America and Caribbean region, even a slight recovery there could turn the tide. Profits are projected to continue to fall until mid-2025 and then recover through 2026.
Not only
Diageo is the tenth largest company in the FTSE 100 index and it is no surprise why: the company controls a huge share of the international alcohol market. With a huge portfolio of brands that includes Johnnie Walker, J&B, Seagram, Mr. Julio, tankard, and Bell-shapedIt's hard to go a day without seeing their products on the shelves.
One of its biggest competitors is Brown-Formanthe American beverage giant behind Jack Daniel's Whiskey and Horseshoe Tequila. It had an even worse year, with a drop of 35%. What is happening to the popular French brand? Pernod Ricard? The same fate: a 32% drop.
Adapting to change
This suggests an overall decline in alcohol consumption globally. Surveys have revealed a shift in drinking habits among younger generations, with low-alcohol or alcohol-free brands becoming more popular.
Why do I feel like all of this has happened before?
Because that's how it has been. Almost two decades ago, e-cigarettes went out of fashion and vaporizers started to take over. But 20 years later, British American Tobacco Still going strong. By working with regulators and adapting to changing times, it managed to survive.
I hope Diageo takes note, and soon. If not, I may have to break one of my cardinal rules and sell the stock at a loss.
