The macroeconomic landscape remains highly uncertain as we hurtle towards 2024. But I feel that these FTSE 100 and FTSE 250 stocks could prove excellent stocks to buy for my portfolio. Allow me a few minutes to explain why.
Babcock International Group
The amount of money countries spend on defence remains largely unaffected by broader economic conditions. This is because protecting citizens from overseas and terrorist threats is one of the priorities of any government.
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In fact arms spending is booming right now as the world gears up for a Cold War 2.0. Defence contractors are witnessing a sharp rise in order levels as tension between their Western customers and Russia and China mount.
FTSE 250-quoted Babcock International (LSE:BAB) is one such company. In fresh trading news today it announced that since April it had enjoyed “good organic revenue growth, improved operational performance and higher cash flow” versus the corresponding 2022 period.
The Babcock share price has rocketed this year as orders have climbed. But at current prices it still looks dirt cheap: it trades on a price-to-earnings growth (PEG) ratio of just 0.1 for 2023. Any reading below 1 indicates that a stock is undervalued.
Babcock provides engineering and training services to military forces around the globe. And City analysts expect earnings here to soar 111% this financial year (to March 2024) before rising by double-digits in the following two fiscal years.
Diageo
I believe Diageo (LSE:DGE) is also one of the best stocks in the current climate. It’s why I bulked up my own holdings in the company earlier this year.
Products like its Guinness stout, Captain Morgan rum and Johnnie Walker whisky remain popular buys even when consumers feel the pinch. This means the company can raise prices to offset rising costs and increase profits, a powerful tool in inflationary periods like this.
Fresh trading commentary last week illustrated the resilience of Diageo’s business model. Chief executive Debra Crew maintained its medium-term target of growing organic net sales growth by 5% to 7%, and organic operating profits between 6% and 9%.
The FTSE firm has slumped in value in 2023 as worries over legal action in the US have mounted. Rapper Sean Combs is taking Diageo to court over claims of racial discrimination related to its DeLeon Tequila joint venture.
But on balance I think Diageo’s share price slump represents a great dip buying opportunity. As the chart below shows, the drinks giant’s price-to-earnings (P/E) ratio has crumbled to around 18.5 times, well below historical norms.
I think this is especially cheap given the excellent progress the company making to build market share. As investment guru Nick Train points out, its share of the global alcoholic beverages market jumped to 4.7% as of the last financial year (to June 2023), up from 4% three years earlier.
It now looks well on course to hit its target of 6% by the end of the decade. I think Diageo is a great way for investors like me to make money from the steadily growing drinks sector.
