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I'm always looking for cheap stocks to buy. One of my New Year's resolutions will be to find weakened growth stocks that could potentially boost my portfolio's returns.
But before I turn my attention to high-growth sectors, I noticed that two defensive stocks in the FTSE 100 The index is currently trading near 52-week lows.
With both claiming Dividend Aristocrat status, here's why I'm eyeing these cheap stocks before this year comes to a close.
Diageo
It's fair to say that 2023 has been a bleak year for the spirits giant. Diageo (LSE: DGE).
Marred by the death of former boss Sir Ivan Menezes and a big drop in the share price, the board hopes that next year will bring happier times.
However, dark clouds are gathering on the horizon. An unexpected profit warning recently sent the stock price into a tailspin. Weakness in Latin America and the Caribbean is to blame. The region's organic net sales are now expected to fall more than 20% in the first half.
Compared to the previous forecast of 2% growth, the reduction is substantial. Add to that a forward price-to-earnings (P/E) ratio just below 18, above the FTSE 100 average, and potential investors may be wondering why I'm interested in this stock.
I've taken a leaf from Warren Buffett's book. One of the billionaire's maxims is “be greedy when others are fearful“. In that context, this could be a good time to consider buying the dip.
After all, there is residual strength in Diageo's business. The company has an enviable range of premium brands of tankray to Johnnie Walker. Furthermore, the growth trajectory outside of Latin America remains positive, with this region only accounting for 11% of the group's sales last year.
The share price decline has pushed the dividend yield to its highest level in years. Although it is not without risks, the shares seem oversold to me. I think there is room for a pleasant surprise if 2024 brings better news. If I had extra money, I would increase my position here.
Unilever
Consumer goods conglomerate Unilever (LSE:ULVR) has also suffered this year. The stock price has been stuck in a constant downtrend since May.
High inflation has made trading conditions difficult, but the company's price increases have so far managed to offset a 0.6% drop in volumes. Now that inflation is falling rapidly, the macroeconomic context is becoming more favorable.
However, I am concerned about the decreasing percentage of products gaining market share. New CEO Hein Schumacher is focusing on the company's top 30 brands while eliminating unprofitable products. I can see the logic, but streamlining the business while maintaining investor confidence won't be easy.
In addition, Unilever continues to operate in Russia. As a result, it has attracted negative press and reputational risks will remain until the company decides to divest, if ever.
However, the group's pricing power has come to the fore this year. The financial results, while not extraordinary, have been solid enough in my opinion. A stellar dividend history also increases the attractiveness of the investment.
If the pressure on the company's margins eases and the €600 million cost-cutting program proves successful, next year could be better for Unilever shares. Overall, I think the stock deserves consideration from value investors.
