Operating in over 180 countries on 5 continents, Diageo is the world's top maker of premium alcohol brands including Johnnie Walker, Smirnoff, Captain Morgan & Guinness.
We first looked Britain's Diageo as an international trade powerhouse last July in the article King of Alcoholic Beverages.
Paul Tracy, editor of StreetAuthority Market Advisor, looks to Diageo as his favorite conservative stock for 2007. Tracy's stock predictions are much respected after he finished 4th in last year's stock picking competition among leading financial newsletter advisors. Tracy notes that Diageo owns either the best-selling or second-best-selling brand of drink in every major category of alcohol. Diageo accounts for 55% of the sales for the world's top 10 premium spirits brands.
Tracy likes Diageo's moves into foreign markets in Africa, Latin America and Asia. He is also attracted to the stock's dividend yield of 3%, noting that there's room for further distribution hikes.
Around the world, premiums spirits consistently generate the highest prices from wealthy baby boomers and enjoy the highest profit margins. Diageo is the premium alcohol leader in the U.S., Great Britain, Ireland, Russia, Brazil, India, Korea and Australia.
Although Diageo has over 150 brands, the company focuses on both global priority brands and some 30 local priority brands. A local priority brand is one which holds an important position in an individual region, e.g. Crown Royal in North America and Cacique in Spain.
Diageo is strategically positioned to take advantage of anticipated strong demand from drinkers in fast-growing Brazil-Russia-India-China. In Brazil, the company is #1 in premium & standard scotch and vodka, with net sales up 42% from 2005. Diageo is Russia's #1 maker of premium & standard scotch and cream liqueurs, up 26% from 2005. Drinkers in India make Diageo #1 in vodka and premium scotch, up 37% in 2005. Net sales in China are up 61% from the year earlier.
We agree that Diageo will continue to be the King of Alcoholic Beverages in world trade. However, Diageo's current stock price of US$89 is near an all-time high. Six months ago Diageo's price was 40% lower at $65. We'll wait until Diageo's shares approach the $65-70 level before jumping on the Diageo bandwagon.
