9 Stocks Warren Buffett Has Bought Since Beginning of AI Revolution

5. Diageo plc (NYSE:DEO)

Number of Hedge Fund Holders: 30 

Berkshire Hathaway’s Shares in Q1 2024: 227,750       

Diageo plc (NYSE:DEO) produces, markets, and sells alcoholic beverages. It owns some of the most famous brands in the world, including Johnnie Walker, Guinness, Smirnoff, and Baileys. It has a presence in over 180 countries globally, with production sites in nearly 150 of them. In the past decade or so, the company has ramped up mergers and acquisitions to expand a portfolio of scotch whiskey, rye whiskey, gin, rum, vodka and tequila. There are plenty of reasons to be bullish on the shares, one of them being the firm’s presence in the developing world, which contributes to nearly half of the overall revenue of the company and has the potential to add hundreds of millions of new customers.

Diageo plc. (NYSE:DEO) has a stellar dividend record with nearly 25 years of payout history in a sector where the median for this is only 14 years. The company can grow profits in the coming months as it has high quality brands, a strong market presence, a diversified spirits portfolio, a healthy balance sheet, and is relatively undervalued.

In its Q4 2023 investor letter, Artisan Partners, an asset management firm, highlighted a few stocks and Diageo plc (NYSE:DEO) was one of them. Here is what the fund said:

“One of the areas that hasn’t participated in the year’s rally has been consumer staples. We identified two staples stocks that meet our three margin of safety criteria (attractive business economics, sound financial condition and attractive valuation), purchasing Diageo plc (NYSE:DEO) and Kerry Group.

Diageo is a global leader in alcoholic beverages with an impressive collection of brands across spirits and beers. The company’s portfolio of over 200 brands provides diversification and allows it to meet consumer trends. A key focus for growth has been premiumization, and today, Diageo’s portfolio is now more heavily weighted toward premium segments. Shares are trading at multiyear trough multiples on fears of growth normalizing after a COVID-induced bounce and premiumization headwinds as some markets are showing consumers trading down to value alternatives. In the near term, margin expansion will likely be constrained, but the company generates meaningful free cash flow and returns it to shareholders through dividends and share repurchases. Over the past five years, Diageo generated £12 billion FCF and returned £16 billion to shareholders. Although spirits are more cyclical than other staples, the company’s growth prospects are better long term, and we believe the current situation has provide us an attractive investment opportunity.”