It was announced today that China's sovereign wealth fund has acquired 1.1% of the worlds largest alcoholic beverages maker Diageo PLC (NYSE: DEO), a deal valued at $365 million.
- "The move by China Investment Corp, which manages $200bn of the country's $2,132bn in foreign exchange reserves, makes the fund the UK-based groups' ninth-largest investor."
It was only last week I wrote about Diageo, stating: "the kind of stock you might pick if you only owned one stock in the universe"
Diageo is up about 15% since I recommended it last December and it provides a 4% dividend on top of that. It was trading just over $59 a share this morning but that is still $18 below its 52 week high of $77.
I see no reason why it will not return to that level, in particular, because the Chinese governments interest in the company may influence the spread of Diageo products throughout the region where DEO has already partnered with a Chinese company to produce a locally branded vodka.
If you are interested in building a long term position in Diageo as a solid income producer with strong potential upside, it is not to late to buy into it now. Just don't bet the farm. Buy a few shares; if it goes up you will be happy and if it goes down buy some more. This is not going to become a rapidly falling knife, given the demand for Diageo's products and its very broad world wide base.
Update: DEO closed at $59.61, up $0.91, or 1.55%.
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. Disclosure: I own shares of DEO.
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