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    Home » 3 reasons why my Diageo shares could stage a stunning recovery
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    3 reasons why my Diageo shares could stage a stunning recovery

    userBy userJuly 1, 2025No Comments3 Mins Read
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    Image source: Getty images

    The past few years have been miserable for holders of Diageo (LSE:DGE) shares like me. At £18.40 per share, the FTSE 100 business has pretty much halved in value since mid-2022.

    The shocking downdraft has shown no signs of easing, either. Its shares are down 26% in the last 12 months, and hit its cheapest in a decade in recent days.

    I’ve thought about pulling the plug and selling my holdings several times. But I feel Diageo’s price slump has been overdone and doesn’t reflect its long-term strengths. And while it may take some time, I’m optimistic the drinks giant will rebound strongly from recent troughs.

    Here are three reasons why I think Diageo is a recovery share to consider.

    1. Sales improving

    The unrivalled brand power of drinks such as Johnnie Walker and Guinness has enabled the company to effectively navigate previous economic downturns. Even when consumers have tightened their belts, volumes have remained stable even when Diageo’s lifted prices.

    This durability has been far less evident during the recent economic slump however. Sales have been especially weak in China and Latin America as drinkers have opted for cheaper brands.

    But with trade tensions beginning to ease (see below) and interest rates falling, I’m confident demand for Diageo’s prestigious brands could recover strongly. Third-quarter results that beat forecasts have boosted my confidence, showing organic net sales up 5.9%, thanks to an improvement in volumes and prices. All regions showed growth bar Asia Pacific.

    With the business still investing heavily in growth areas like premium and non-alcoholic drinks, the long-term outlook here remains bright, in my opinion.

    2. Tariff breakthroughs

    Diageo ships enormous quantities of alcohol into the US, its single largest market, from other regions. Key revenues drivers such as Crown Royal whisky and Don Julio tequila are all manufactured overseas, leaving the company highly exposed to trade tariffs.

    The business has estimated import taxes could cost it $150m each year. While it’s targeted cost-cutting and price hikes to offset the expense, such measures will take time to become effective, if they have their desired impact at all.

    But more recent noises coming out of Washington suggest a thaw in trade tensions that could provide a significant boost to Diageo’s bottom line. After striking a trade deal with China last week, US commerce secretary Howard Lutnick said “we’re going to do top 10 deals” with other major trading partners in the coming weeks.

    Such measures could significantly improve the mood music around Diageo and lift its share price higher.

    3. Value for money

    My view is that Diageo’s shares are certainly cheap enough to spark renewed investor interest as newsflow improves.

    Today, the company’s forward price-to-earnings (P/E) ratio is just 14.5 times. That’s far below the 10-year average of 21.1 times. Meanwhile, its prospective dividend yield of 4.2% beats the 2.7% it’s averaged over the last decade.

    Finally, the drinks giant’s price-to-book (P/B) ratio now sits below five times (see above). It was flirting around double-digit-percentage territory just two years ago.

    While it’s not without risk, I think Diageo demands serious attention as a potential recovery stock.



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