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I don't believe in buying stocks to hold for a while. I mean the best FTSE 100 stocks can have periods of prolonged price weakness, depending on broader economic conditions and market sentiment.
Investment guru Warren Buffett said it should “buy only what you would be more than happy to hold when the market closes 10 years.” In this way, the investor has the opportunity to eliminate the impact of market volatility on his ultimate return.
Circumstances can change, and a stock that looks attractive one day may become a 'dog' within a few years. Rapid regulatory changes can jeopardize the profitability of utility stocks, for example. Changing consumer preferences can hurt luxury goods sales.
However, the best strategy is to buy stocks that – at the time of purchase – look like they are destined to dominate for the next decade or more. With this in mind, here are some of my favorites from the FTSE 100.
A fallen angel
It is drinking a giant Diageo(LSE:DGE) has struggled of late as weak consumer spending – and particularly in its Latin American and Caribbean region – hit sales prices.
The biggest challenge in the long term would be the rising levels of 'teetotalism' in the West. In the UK, for example, 27% of adults now drink zero alcohol. That's up from 13% two years ago, according to ad agency Red Brick Road.
But despite this situation, I am still buying Diageo shares in 2020. And in 2023. And I plan to hold them for the rest of my life.
Geographical access
Another reason is because of the incredible benefits it can do for fast growing regions. I hope that the combination of rising income levels and population growth will increase sales from its markets in Africa, Asia and Latin America over time.
To emphasize this point, I will quote from a recent study by the International Wine and Spirits Record's (IWSR), which suggests that market development will improve the drinks industry worldwide in the next few years.
The body saysIndia, China (including national spirits) and the US are expected to add US$30bn in incremental value (at 2023 prices) by 2028..”
According to IWSR, the next two value-adding markets will be Brazil and Mexico. These are two areas where Diageo also has significant exposure.
Labels are powerful
Another reason I plan to hold on to my Diageo shares is the timeless nature of its product portfolio. Popular brands like Captain Morgan rum, Johnny Walker whiskey, too Smirnoff vodka is more popular now than ever.
Their immense popularity is backed by the company's enduring marketing expertise and track record of product innovation. Speaking of which, sales of Guinness 0.0 – a non-alcoholic version of its popular beer – doubled in Europe last year.
This not only shows the huge pulling power of Diageo labels. And, interestingly, it suggests the company has the tools to increase profits even if Western alcohol consumption declines.
Diageo shares have traded at a price-to-earnings (P/E) ratio of 31.4 times over the past five years. Today they only work together 18 times. Given this huge discount, I am tempted to increase my stake in the company.
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