I’m always looking for cheap shares to buy. One of my New Year’s resolutions will be to find beaten-down growth stocks that could potentially turbocharge my portfolio’s returns.
But before turning my attention to high-growth sectors, I’ve noticed that two defensive stocks in the FTSE 100 index currently trade near 52-week lows.
With both claiming Dividend Aristocrat status, here’s why I’m eyeing up these cheap stocks before this year draws to a close.
Diageo
It’s fair to say 2023 has been a gloomy year for alcoholic drinks giant Diageo (LSE:DGE).
Marred by the death of former boss Sir Ivan Menezes and a big fall in the share price, the board will hope next year brings happier times.
However, dark clouds loom on the horizon. An unexpected profit warning recently sent the share price into a tailspin. Weakness in Latin America and the Caribbean is the culprit. The region’s organic net sales are now anticipated to fall over 20% in the first half.
Compared to the previous forecast for 2% growth, the downgrade’s substantial. Couple that with a forward price-to-earnings (P/E) ratio just below 18 — higher than the FTSE 100 average — and potential investors may query why I’m keen on this stock.
I’ve taken a leaf out of Warren Buffett’s book. One of the billionaire’s maxims is to “be greedy when others are fearful“. In that context, this could be a good time to consider buying the dip.
After all, there’s residual strength in Diageo’s business. The company owns an enviable range of premium brands from Tanqueray to Johnnie Walker. Moreover, the growth trajectory outside Latin America remains positive — and this region only accounted for 11% of last year’s group sales.
The sinking share price has pushed the dividend yield to its highest level in years. While not without risks, the stock looks oversold to me. I think there’s room for a nice surprise if 2024 brings better news. If I had spare cash, I’d add to my position here.
Unilever
Consumer goods conglomerate Unilever (LSE:ULVR) has also suffered this year. The share price has been stuck in a consistent downtrend since May.
High inflation has made trading conditions challenging, but thus far the company’s price hikes have managed to offset a 0.6% slump in volumes. With inflation now falling rapidly, the macro backdrop is becoming more favourable.
However, I’m concerned by the declining percentage of products winning market share. New CEO Hein Schumacher is focusing on the firm’s 30 main brands while cutting unprofitable products. I can see the logic, but streamlining the business while maintaining investor confidence won’t be easy.
In addition, Unilever continues to operate in Russia. It has attracted negative press as a result and reputational risks will remain until the company decides to divest — if it ever does.
Nonetheless, the group’s pricing power has come to the fore this year. Financial results, while not extraordinary, have been sufficiently robust in my view. A stellar dividend history also adds to the investment appeal.
If pressure on the firm’s margins eases and the €600m cost-cutting programme proves successful, next year could be a brighter one for Unilever shares. Overall, I believe the stock merits consideration by value investors.
