Forget the expensive valuations and keep buying Diageo plc, Bunzl plc & Vodafone Group plc!

Royston Wild explains why investors should shrug off heady paper valuations and buy Diageo plc (LON: DGE), Bunzl plc (LON: BNZL) and Vodafone Group plc (LON: VOD).

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Today I’m making the case for three ‘expensive’ FTSE 100 stars.

Toast terrific returns

In a period of significant deflation in the food and drink segment — not to mention slumping consumer spending power in ‘growth regions’ — the value of companies carrying significant brand power cannot be underestimated.

In this regard I believe beverages giant Diageo (LSE: DGE) is worth its weight in gold.

Should you invest £1,000 in Bunzl Plc right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Bunzl Plc made the list?

See the 6 stocks

Through shrewd investment in hit labels like Baileys whiskey/liqueur, Guinness stout and Johnnie Walker whisky, Diageo is still managing to keep revenues nudging higher despite the impact of severe currency headwinds.

Indeed, a steady stream of product innovations across Diageo’s key labels — as well as an improving presence in the red-hot ‘premium’ segment, such as the likes of Cîroc vodka — promises to light a fire under earnings growth once current trading difficulties subside.

On top of this, I believe Diageo’s rising global presence also merits a premium rating, a quality that provides it with excellent exposure to increasingly-wealthy emerging market customers while also reducing its dependence on one or two regions.

Given these factors, I reckon the drinks play is an irresistible stock candidate regardless of its slightly-heady P/E rating of 20.9 times for fiscal 2016.

A defensive darling

Like Diageo, support services play Bunzl (LSE: BNZL) carries splendid defensive qualities that justify a P/E rating above the FTSE 100 average of 15 times, in my opinion.

While the drinks giant can rely on splendid brand power to keep powering revenues forward, the ubiquity of Bunzl’s product range — from first aid kits and hard hats right through to plastic cutlery — enables earnings to reliably shoot higher regardless of the wider economic climate.

Indeed, the essential nature of Bunzl’s services has enabled the bottom line to grow at an annualised rate of 7.4% during the past five years. And with the firm embarking on ambitious acquisitions to improve its global footprint, I see no reason for this trend to screech to a halt any time soon.

This view is shared by the number crunchers, and a 6% earnings advance is currently predicted for 2016 . Sure, this may result in a conventionally-expensive P/E multiple of 21 times. But I believe Bunzl’s ability to keep grinding out profits growth regardless of wider economic pressures merits such a premium.

Mobile master

I reckon that Vodafone (LSE: VOD) is one of the finest long-term growth picks out there thanks to its extensive investment programme of recent years.

The telecoms titan’s Project Spring organic spending scheme has worked wonders in finally turning around its dragging fortunes on the continent, while acquisitions like those of Kabel Deutschland and Spain’s Ono have given it a foothold in the rapidly-expanding ‘quad-play’ entertainment services arena.

But it’s the firm’s galloping progress across Asia, the Middle East and Africa that really promises to supercharge earnings growth this year and beyond, areas where data demand in particular continues to explode. Indeed, Vodafone has put 3G and 4G at the heart of its investment in these destinations.

The City expects earnings to shoot 22% higher in the year to March 2017, reflecting Vodafone’s improving success in both established and emerging markets. And while this may still result in a top-heavy P/E ratio of 39.1 times, surging mobile phone usage across the world should see this multiple steadily topple in the coming years.

AI Revolution Awaits: Uncover Top Stock Picks for Massive Potential Gains!

Buckle up because we're about to dive headfirst into the electrifying world of AI.

Imagine this: you make a single savvy investment in some cutting-edge technology, then kick back and watch as it revolutionises entire industries and potentially even lines your pockets.

If the mere thought of riding this AI wave excites you and the prospect of massive potential returns gets your pulse racing, then you’ve got to check out this Motley Fool Share Advisor report – 'AI Front Runners: 3 Surprising Stocks Riding The AI Wave’!

And here’s the kicker – we’re giving you an exclusive peek at ONE of these top AI stock picks, absolutely free! How’s that for a bit of brilliance?

Get your free AI stock pick

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.

Royston Wild has no position in any shares mentioned. The Motley Fool UK has recommended Diageo. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

If a 50-year-old puts £750 a month into a SIPP, here’s what they could have by retirement

Investing £750 in a SIPP each month could generate a pension pot worth anywhere between £259,528 and £602,410 in just…

Read more »

Passive income text with pin graph chart on business table
Investing Articles

Could 1 ISA, £20,000, and 5 FTSE 100 stocks generate £12,517 of passive income a year?

The maximum amount that can be put into a Stocks and Shares ISA this year is £20,000. But how much…

Read more »

Investing Articles

If a 30-year-old puts £300 a month into a Stocks & Shares ISA, here’s what they could have by retirement

The Stocks and Shares ISA can, over the long term, prove a great way to build life-changing wealth. Royston Wild…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£30k to invest? 3 FTSE 100 and FTSE 250 dividend shares to target a £2,190 passive income

Forward dividend yields on these FTSE 100 and FTSE 250 stocks smash the average for UK shares, as Royston Wild…

Read more »

Investing Articles

3 proven strategies to help build generational wealth in the stock market

By employing the right approach, it's entirely possible to build a sizeable sum of money in the stock market over…

Read more »

Playful senior couple in aprons dancing and smiling while preparing healthy dinner at home
Investing Articles

£25,000 invested in Rolls-Royce shares 3 years ago is now worth…

Rolls-Royce shares have soared, driven by strong defence and aviation demand, debt reduction, and aggressive growth targets. A remarkable turnaround.

Read more »

Investing Articles

Down 21% since February, this winning FTSE 100 stock now looks interesting

After losing nearly a quarter of its value in the space of a month, this high-quality FTSE 100 share's firmly…

Read more »

Investing Articles

3 high-yield dividend shares to consider buying for a retirement portfolio

Dividend shares can provide retirees with regular passive income in their golden years. Our writer picks out three with yields…

Read more »