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Diageo (LSE: DGE) shares are a blight on my Self-Invested Personal Pension. The FTSE 100 drinks giant is down 20% over the last year and almost 50% across three.
Glencore (LSE: GLEN) has been just as grim. The commodities and trading giant has fallen 27% and 35% over the same periods. Diageo has struggled with weaker consumer demand in key markets, currency swings and restructuring costs. Glencore has been hammered by sliding coal prices, lower copper volumes and uncertainty over global trade.
FTSE 100 strugglers
I actually bought both stocks after their troubles began, thinking I was getting in at a bargain price. Instead, they kept tumbling. I’m personally down a third on both. Yet despite the pain, I’ve held on.
Maybe that’s stubbornness. Or a refusal to take the loss. But I still believe both companies have recovery potential, even if they’re taking time to show it.
Diageo’s full-year results, released on 5 August, showed organic net sales up 1.7% thanks to pricing gains, but operating profit dipped 0.7% to $5.7bn. Reported profit slumped 27.8% to $4.33bn. Yet cash flow was strong at $2.74bn. The board lifted its cost-savings target to $625m. Standout brands like Don Julio and Guinness continued to grow.
Glencore also disappointed with half-year results on 6 August. Adjusted earnings slid 14% to $5.4bn, while marketing profits fell 8% to $1.8bn amid weaker coal prices and lower copper output. Copper production dropped 26% due to declining grades, although cobalt rose 19%. The group pledged $1bn in savings.
Mixed valuations today
Diageo trades on a trailing price-to-earnings ratio of 16.7, only slightly above the long-term FTSE 100 average of around 15. The dividend yield is 3.83%, which is alright but not great. Glencore’s volatile earnings leave it with a negative P/E, reflecting a 76% fall in EPS last year from $1.40 to 34 cents. The trailing yield is 2.46%.
I am more optimistic about Diageo, but Donald Trump’s tariffs could keep the pressure on. I’m also nervous about younger generations drinking less and the impact of weight-loss drugs on alcohol demand. The whole commodities sector is struggling and I can’t see a reprieve. China’s 2025 GDP growth target is around 5%, but many doubt its accuracy. Either way, the construction boom days are long over.
Forecasts for the year ahead
Analysts see some light. Forecasts suggest Diageo could climb to 2,310p in the next year, which would be a rise of 13.73% from today’s 2,031p. Add the forecast 3.79% dividend and total returns could reach 17.52%. That would turn £10,000 into £11,752.
Glencore forecasts are brighter still. Brokers tip the shares to reach 356.8p, a 19.01% gain from today’s 299.8p. With a 2.46% forecast yield, the total return could be 21.47%. That would turn £10,000 into £12,147.
Both forecasts are rosier than my current mood, but perhaps that reflects how beaten down I feel. The bad news is well known and priced in. If we do get good news, these shares could recover. I will keep holding, and contrarian investors might consider buying at these levels. But only for long-term investors with bags of patience. This could take time.
