Should you buy Diageo shares in July?
Diageo Plc (LON:DGE) (DGE) shares gained 1.57% over the last 30 days and about 17.67% this year. The company is benefitting from the easing Covid situation around the globe. Things could get better with governments relaxing restrictions imposed to combat the spread of the pandemic.
The UK government announced this week that it will lift nearly all the remaining Covid-19 restrictions on 19th July, allowing people to attend sporting events without the requirement of a vaccination certificate.
The announcement follows two months after it reopened the door for previously restricted business activities like pubs and restaurants to resume operations.
How Diageo will benefit from easing Covid restrictions
Alcohol producers will be among the biggest beneficiaries of the easing global Covid situation. Diageo is among companies adversely affected by the pandemic. But that is now changing.
Markets across the globe are reporting rising consumer spending, allowing more budget allocations for luxury activities like travel and entertainment. Most of these activities involve significant consumption of alcohol, one of Diageo’s leading products.
Furthermore, as the return to normalcy becomes a reality, economies around the world are reopening allowing previously restricted business activities like pubs and restaurants to resume full operations. Again, Diageo will benefit as the demand for alcoholic beverages continues to soar.
The company issued upbeat profit guidance in its most recent trading update saying it now expects a 14% bottom-line growth this year. Diageo will witness robust sales growth particularly in the UK and the US markets amid the easing Covid situation and a rise in consumer spending.
Be wary of potential bottlenecks
Although the Covid situation is easing in several parts of the world, there are concerns that the delta variant could cause hiccups in the economic recovery as more countries become cautious.
The World Health Organization, first declared the delta variant a concern in the fight against covid in May. Health experts declare a delta variant situation when there is evidence of increased transmission, elevated levels of severe illness, or reduced effectiveness of available vaccine treatments.
The delta variant could force governments to impose new covid restrictions, leading to the temporary closure of businesses in the drinks industry.
Although at-home consumption reduced the adverse Covid impact on alcoholic drinks sales, the industry still operated below par at the height of the pandemic. It is yet to reach pre-pandemic levels.
Therefore, a return to normalcy is a key factor for alcoholic drinks manufacturers realizing current sales and profit projections.
If the UK government moves ahead with the planned lifting of a majority of the remaining Covid restrictions, it runs the risk of flaring up the pandemic.
Is Diageo a good investment in Q3 2021?
In summary, Diageo is poised for an exciting period ahead following the lifting of several Covid restrictions. However, the world is yet to completely get the better of the deadly pandemic amid the threat of new variants.
Therefore, although Diageo expects significant growth in profits this year, it is important to factor in the potential bottlenecks that could derail that growth. But for now, DGE shares look exciting to investors willing to overlook short-term hiccups.
Not Investment Advice
Note: Views expressed are those of the writer. The author does not own any stocks mentioned. The article is information, not advice. Share prices can rise and fall. Past returns are not a guide to the future. Please do your own research.