Why don’t I own shares in these 2 FTSE 100 giants?

These two FTSE 100 giants are global leaders in their fields, yet their shares have weakened recently. So why don’t I already own these mega-cap stocks?

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When asked what type of investor I am, I reply that I’m an old-school value, income and dividend investor. And the undervalued, dividend-paying stocks I buy are usually found within the elite FTSE 100 index.

Two mega-stocks I don’t own

Earlier, when screening for cheap shares, I spotted two mega-cap stocks — that is, shares in very large businesses — I don’t own. Here are these two whales:

CompanySectorMarket valueShare priceOne-year changeFive-year change
UnileverConsumer goods£102.8bn4,056.5p+9.5%-2.2%
DiageoAlcohol/beverages£75.8bn3,372.5p-6.9%+22.1%

Both of these British businesses are leaders in their fields, with even the smaller worth over £75bn. Yet Unilever (LSE: ULVR) has seen its shares decline over five years. However, these figures exclude cash dividends, which are substantial from both firms.

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So is it time for me to go big-game hunting?

Why don’t I own Unilever?

Oddly enough, I asked myself why I don’t own Unilever a fortnight ago. I’ve long admired the business, its hugely popular brands and its management team. So why not buy a stake in this storied firm?

On Friday, the share price closed 9.5% below its 52-week high of 4,483.25p, set on 28 April. So it’s below its 2023 peak, which I like.

Turning to fundamentals, it trades on a price-to-earnings ratio of 15.8, producing an earnings yield of 6.3%. Although this is more ‘expensive’ than the wider FTSE 100, my hero Warren Buffett has taught me that it’s worth paying a higher price for premium products.

Meanwhile, Unilever’s dividend yield of 3.7% a year is bang in line with the Footsie’s yearly cash yield. But Unilever has a decades-long record of delivering superior dividend growth over time.

That said, share prices don’t move in straight lines — and Unilever peaked above £52 in August 2019. Also, falling disposable incomes have put pressure on household budgets, leading some consumers to switch to cheaper brands and hitting this group’s earnings growth.

Even so, I have added this stock to my watchlist to buy when a lump sum arrives in July.

Why not buy Diageo?

Diageo (LSE: DGE) shares have taken a bit of a beating since late April. Indeed, at Friday’s close, the stock stood just 1.4% above its 52-week low of 3,326.5p, hit on Thursday (1 June).

As a bargain hunter, I’m naturally drawn to ‘fallen angels’ — great businesses whose shares are temporarily weaker or depressed. Right now, it trades on a price-to-earnings ratio of 21.6, for an earnings yield of 4.6%. Again, like Unilever, the share trades at a premium to the wider FTSE 100.

And while Diageo’s dividend yield of 2.3% a year is much lower than the Footsie’s yearly cash yield of 3.7%, the payout is covered twice by earnings. That’s a solid margin of safety.

In short, while Diageo’s shares are more expensive than Unilever’s, I’m drawn to them for the same reasons: great leadership, popular products and market strength.

Yet the group faces similar headwinds to its bigger British cousin — namely, tighter consumer spending, slower global growth, and earnings pressure.

Nevertheless, I have added this FTSE 100 stock to my watchlist to buy later this year. The only reason why I have yet to buy both stocks today is a lack of ready cash. But I intend to buy them next month, when the opportunity presents itself. And I aim to hold them for years and even decades.


Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Cliff D'Arcy has no position in any of the shares mentioned. The Motley Fool UK has recommended Diageo Plc and Unilever Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services, such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool, we believe that considering a diverse range of insights makes us better investors.

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