Diageo (LSE: DGE) shares are stinking out my Self-Invested Personal Pension. When I bought the FTSE 100 spirits giant in January 2023 the stock had just plunged following a profit warning but I thought it would bounce back in no time. Wrong. It’s fallen 25% in the last year and more than 50% over five years. I’m personally down 36%.
I’ve held on in the hope of a turnaround, because patience is central to long-term investing, but at times I’ve been sorely tempted to get rid.
Two other SIPP holdings are testing my nerve too. Mining giant Glencore is down 10% over one year and 30% over three. Personally, I’m down 27%. Gencore did show signs of a recovery recently, but it fizzled out. Ocado Group is the real nightmare. The grocery specialist has plunged 38% over 12 months and more than 70% over three years. I’m down 55%.
There have been moments when I’ve wanted to clear the decks and tidy up my SIPP. On The Motley Fool, we only suggest buying shares with a minimum five-year view. I’m only two or three years into that. However, we also reckon it’s also worth reviewing the original investment case, to see if it still holds.
Checking the investment case
Diageo’s profit warning followed sales and stocking issues and in Latin America and the Caribbean. The issue has widened, with sales falling in the US, Europe, and China too, as drinkers feel hard up. Normally, I would sit tight and wait for the cost-of-living crisis to ease but in two respects, the investment case may have changed.
First, younger adults are drinking less. Second, weight-loss drugs may also suppress appetite for alcohol as well as food. Both could inflict a long-term structural blow to alcohol sales.
Yet I’m reluctant to sell. Incoming chief executive Sir Dave Lewis did a great job of turning Tesco around. I’m hoping he can repeat the magic at Diageo. Lewis doesn’t start until January, so I’m holding on. Today, Diageo looks reasonable value on a price-to-earnings ratio of 13.8, and the yield sits at 4.5%. Bargain hunters may consider buying at today’s price, but need to understand the risks.
Waiting for a cycle to turn
Glencore has been hit by weak demand from China and worries over a US recession. Yet commodity stocks move in cycles, and selling during the trough is rarely wise.
It’s my only natural resources stock, so I’m inclined to stay put for diversification purposes at least. Investors might consider buying Glencore while it’s out of favour, but it’s unlikely to soar in the short term.
Ocado suffered yet another blow on Tuesday (18 November) when US partner Kroger said it would shut three of its automated customer fulfilment centres. Ocado has eye-popping technology but the big question is whether there is a market for it. Probably not in the US now. It may just have set its sites too high.
I wouldn’t suggest anybody consider buying Ocado shares. They’re just too risky. After months of dithering, I’m close to selling. All three have tested my patience, but Ocado is running out of time.
