Even the best FTSE 100 shares go through tough times. Last year, I bought two former stock market darlings, miner and commodities trader Glencore (LSE: GLEN) and spirits giant Diageo (LSE: DGE), hoping they would swing back into favour.
I picked them up at relatively low valuations, and secured a slightly higher yield to boot. I’m hoping they’ll bounce back in 2024 but they’re showing little sign of life right now.
I’m down a modest 2.21% since I bought Glencore in July and August. I haven’t even had the pleasure of receiving a dividend yet (I’m expecting my first around April).
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Time to bounce back?
I’m fine with that, more or less. Like all the stocks I buy, Glencore was intended as a long-term buy and hold. My intention was to pick it up on the cheap, and I achieved that. It was trading at a meagre four times earnings when I bought it.
Glencore enjoyed a bumper 2022 as high oil and coal prices triggered record profits, allowing it to slash net debt and still lavish $7.1bn on investors, including a $1.5bn share buyback. Last year has been tougher, with maintenance outages and strike action hitting output, while input costs climbed and China’s troubles hit demand. The board is still expecting to report full-year adjusted earnings before interest and tax of $3.5bn to $4bn.
Glencore is also making a potentially risky shift away from dirty coal, by spinning off recent acquisition Teck Resources. The group’s shares are down 16.86% over one year, although long-term investors are sitting on a 50% gain over five years.
The forecast 2023 yield of 7.43% is expected to drop to 4% in 2025, which I don’t like. China is still struggling. I’m not hugely hopeful but Glencore’s shares are my only direct exposure to the cyclical commodity sector, so I’ll tough it out.
I need a stiff drink after that
I can hardly complain that Diageo hasn’t done the business since I only bought it on 24 November. I judge the success of my stock purchases over the years, not months.
The Diageo share price had a great run for years and always looked too expensive to buy. That changed in a single day on 10 November, when its share price plunged 16% due to poor sales in Mexico. That’s its largest one-day drop since 1987. Over 12 months, it’s down 23.25%.
Experience has shown me that when companies take a sudden beating, the problems are often deeper rooted than they first seem. One profit warning can often follow another. I’m not saying that’s the case here, but I didn’t buy Diageo expecting an instant share price recovery.
Just two months before the bad news broke, Diageo claimed all was well. Investors reckon the board should have seen the Mexican wholesaler build up coming before they did and taken action. Now they’re hoping for better tidings on 30 January, when interim results are due.
Even if they disappoint, I’m holding what I have. Diageo sells drinks all over the world and problems in one region look like an opportunity to buy rather than a reason to sell. Both stocks could recover strongly when the mood changes, I just have no idea when. I’ll reinvest my dividends while I wait.
