Why I Like Diageo

LONDON -- As the New Year begins, I have been looking for new shares to buy -- and one that has caught my eye is Diageo (LSE: DGE  ) (NYSE: DEO  ) . So, for the rest of the year -- along with Associated British Foods and Vodafone -- I will be following the company's performance and conducting further research into its news and results.

Diageo is another FTSE 100 share that's considered "defensive." The theory follows that if consumers are saving money by cutting down on going out for drinks, they'll buy replacements for what they would have drunk -- after all, a bottle of Johnnie Walker bought from an off-license or supermarket is going to be far cheaper over time than what you'd pay for individual drinks amounting to the same quantity in a pub.

The same goes for Crown Royal, J&B, Windsor, Buchanan's, Bushmills, Smirnoff, Ciroc, Ketel One, Baileys, Captain Morgan, Jose Cuervo, Tanqueray and Guinness -- all brands within Diageo's portfolio. Whatever your tipple, Diageo seems to have you covered.

Now, if the market takes off on a bull run, then defensive shares often suffer. The Footsie has begun 2013 strongly, surpassing the 6,000-point level and currently hovering around 6,130. So why am I still interested in a defensive share like Diageo? Well, the fact that the year has started well does not, unfortunately, mean it will stay that way! 

The market is easily affected by political events around the world: The eurozone problems haven't exactly been tied up with a little bow on top yet; the United States has admitted it is close to hitting the "debt ceiling"; there are ongoing ructions in the Middle East; and here in the U.K., our "AAA" status is under "significant pressure," according to the Fitch rating agency, leaving us vulnerable to economic impacts across the world.

So call me a pessimist, but just don't call me bearish -- here at the Fool, we're always bullish on the stock market. Unlike cigarettes -- another industry considered a vice -- alcohol isn't under attack from all angles of society and in danger of a major drop-off in profits. Yes, there are campaigns against drunk driving and binge-boozing, but these adverts and others are oft-accompanied with a "Please drink responsibly" banner. It's a warning not to overindulge, not a persuasive argument to quit altogether. Although laws have been passed recently banning tobacco displays in supermarkets, shelves of everything from whiskey to wine remain prominent.

I'll delve into Diageo's figures more closely in later articles, but the shares in the company have more than doubled in the last five years -- reaching a low of 733 pence back in 2009 and ending 2012 on 1,787 pence on Dec. 31 -- and risen more than 165% in the last decade. At the time of writing, they can currently be found trading for 1,824 pence -- potentially presenting a buying opportunity. Diageo's performance against the FTSE has been enough to convince me to invest in a small holding, and I shall carefully monitor the company across 2013 to see if it warrants further investment.

If you're looking for other defensive investments in the FTSE 100, I recommend this special free report from The Motley Fool, updated for 2013: "Eight Shares Held By Britain's Super Investor." The report contains the names of the blue-chip companies favored by Neil Woodford, whose track record speaks for itself, having beaten the Footsie by 200%-plus during the 15 years to October 2012 with a collection of dependable, defensive dividend-paying FTSE 100 names. But hurry; all Fool reports are available for a limited time only, so simply click here to have your copy delivered immediately to your inbox.


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