Investors who want to follow "my pal Warren" back into the market are searching for the best angles with the least risk. I have been doing the same and recently posted Fog clearing -- maybe. Clear skies -- no! GE, JNJ, MRK, PG, RTN, WFC, highlighting blue-chip dividend payers.
Last Thursday morning I had a coffee with William O'Sullivan, owner of O'Briens Pub in Santa Monica, Calif., and started quizzing him about how the recession might affect his business. He said it would probably improve. He expected some depressed and unemployed people to find refuge in his bar.
I used the occasion to bring up one of my watch-list stocks, Diageo (NYSE: DEO), the largest distiller of spirits in the world. It is the leader in the world by volume, by net sales, and by operating profit. The company produces eight of the world's top 20 spirits brands. Some of these include include Guinness, Harp, Johnnie Walker, Tanqueray, and Smirnoff. O'Sullivan believes that Diageo has a drink for everyone at price points that his customers will not balk at.
The first time I wrote about DEO was 20 months ago (see Cramer says buy Diageo, I say WAIT) when it was around $85 per share. Since that time it has reached a 52-week high of $93.12. However, I could never bring myself to invest at those levels. Well, Friday it closed at $56.86, up $0.55, on a day the DJIA closed down 312.30 to 8378.95, when almost nothing was in postive territory.
The following ten year chart compares DEO to the DJIA and illustrates that you would have been better off owning DEO at almost any time over the past ten years then the Index. I would speculate that expanding into new markets like China and India during tough economic times may even exaggerate this further.
While DEO sports a market average P/E under 15 it is paying a whopping dividend yield of 5.5%. It would seem almost impossible to believe that people will stop drinking during stressful times, but even if this stock goes nowhere the dividend will make it worth while compared with most other opportunities.
The company's competitive advantages have allowed it to maintain a 19% net profit margin and strong ROIC of 18%, great cash flow, and it has increased shareholder equity year over year. I do not own it yet, but I hope to soon.
Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money.
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Reader Comments (Page 1 of 1)
10-26-2008 @ 1:04PM
Gary E. Sattler said...
Good, common sense stuff here Sheldon.
My opinion would be: Go For It!
10-27-2008 @ 6:03PM
william lindblad said...
Deja vu - I turned on the TV this morn (early) on CNBC and a Bailey,Banks & Biddle commercial came on. BB&B who?
As Arte Johnson used to say - veely interesting?
For those that do not know, they are a competitor to Tiffany and, like Tiff, have been surviving hard times since way, way back. Walter Scott Lenox, of the china line, knew them well as they made him.
Better known as Zales.
You are right Sheldon, there are a few off the wallers out there.
1-10-2009 @ 11:12AM
salter said...
How do you buy single stocks?