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Trade of the Day: Diageo (DEO)

Liquor stock DEO will never go out of style


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Perhaps you have heard of Crown Royal, J&B Scotch, Jose Cuervo tequila, Tanqueray gin, Smirnoff vodka and Captain Morgan rum. It all comes from Diageo (NYSE:DEO).

Diageo is one of the world’s biggest makers and distributors of distilled spirits. Like its competitors Heinekin (PINK:HINKY) and Constellation Brands (NYSE:STZ), shares of this liquor stock were superstars in 2012, and chilled out once risk appetites picked up early in January. Bulls continue to pick up the shares at the bottom of the recent range, which is $115.00 to $120.00. Eventually we are expecting a breakout higher from this range, as DEO has one of the best growth profiles in the world.

The company recently reported a stellar fourth quarter, with net profit up 61% from the same period last year, due in part to cost-cutting in Asia, strong sales in America and price hikes across its markets. The company said it is shifting its focus to developing markets to evade the weak economy in Europe.  It reported a rise of net sales of 18% in Latin America, 6% in Asia, and a new strong effort in South Africa and Nigeria.  Overall, net sales in Europe fell 2% while performance in southern Europe was terrible, showing a net decline of 19%, which signals to me that their change in focus is a good move.

Recommendation: Go long DEO stock for a $127.00 target.

InvestorPlace advisor Jon Markman operates the investment firm Markman Capital Insight. He also writes a daily swing trading newsletter, Trader’s Advantage which aims to capture profits of 15% to 40% and often as much at 100% to 200% in less than 90 days. 

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