Diageo

Diageo plc (DGE:LSE)

Lipstick, chocolate and booze are virtually recession proof products.

Following our mantra of quality, quality, quality for 2009, Diageo fits the bill. The economic down turn gives us the opportunity to acquire this blue chip giant at a decent price.

This London-based beverage maker dominates the top shelf of the spirits industry, with eight of the world's top 20 premium spirits brands, including, Smirnoff, Johnnie Walker, Captain Morgan rum, Baileys Original Irish Cream liqueur,  JeB scotch whisky, Tanqueray gin and Guinness stout.  In addition it also has the distribution rights for the Jose Cuervo tequila brands in the United States and other countries.

Diageo is a massive company with a market cap 19.92 billion and revenues of 8.87 billion. It operates on an international scale. Its operations include producing, distilling, brewing, bottling, packaging, distributing, developing and marketing a range of brands in approximately 180 markets worldwide.
 
Thanks to this unrivaled brand power, Diageo is able to negotiate exclusive distribution rights in the United States,  meaning only one agent per state can distribute its products. This strategy ensures that the brand won't be diluted, and it helps pad the company's hefty 30% North American operating margin.

Sales have been growing at a double-digit clip in Latin America, Africa, and the Middle East. Plus, steady demand for Diageo's spirits has helped the company pour free cash flow back to shareholders. Since 2000, the company has paid out  roughly $11 billion in common dividends and repurchased a staggering $14 billion worth of shares.  All this shows that the company is VERY confident in its growth into the future.

On February 12th 2009, Diageo reported semi annual 2009 earnings of 46.07 per share. This result exceeded last year's results for the same period by 23.51%.  In the current economic climate this shows good resilience.

Diageo is a relatively under-leveraged compared with spirits industry peers, with net debt to earnings before interest, tax,  depreciation and amortisation ratio of 2.5 times

Despite all these positives, shares are trading about 22% off their yearly highs and with a dividend yield of 4.31% this could be a good time to pick up the shares for the longer term.

Buy Diageo plc (DGE:LSE) up to 8.25