In general, I look to focus my investing on companies with truly exceptional attributes. That means I’m only really interested in a handful of shares. It’s rare to find these stocks trading at bargain prices.
But in the case of ( ), I think there’s an opportunity with the share price at a 52-week low. Economics Diageo’s dominant position in the spirits industry allows the business to maintain some impressive economic characteristics. The first is (ROE) and the second is cash conversion.
Over the last 10 years, the company’s managed to achieve an average ROE of around 28%. That’s significantly higher than the FTSE 100 average of 11%. Cash conversion’s also impressive.
Around 33% of the cash the business generates through its operations is used in capital expenditures, meaning 67% becomes available to shareholders. It’s no accident Diageo has these attractive properties. With some of the leading brands in a number of categories and a huge distribution network, it has some durable advantages over its competitors.
Cyclicality Despite its attractive properties, the Diageo share price has been going down. The stock fell 5% in May, while the FTSE 100 advanced 1.3%.
The main reason seems to be macroeconomic pressure. Weak consumer spending has been weighing on sales in Latin America and the Caribbean and there’s a risk of something similar happening in the US. Most of Diageo’s portfolio is focused on the premium end of the market.
And with no real switching costs,.
