| Account | Shares | Price | Value | % of acct | Cost/sh | Gain $ | Gain % | Target |
|---|---|---|---|---|---|---|---|---|
| HSA | 2 | $91.14 | $182 | 0.17% | $75.50 | $31 | +20.7% | — |
In short: His defensive-consumer pick and an AI beneficiary, not a victim: down 50% from 2021 highs yet still generating $3B free cash flow, 13.4% ROIC in FY2026, growing double digits everywhere but the US, where a tequila problem is being fixed by "drastic Dave" Lewis (ex-Tesco/Unilever). "It's trading like it's going out of business" — good business, great price, with a large margin of safety.
Diageo owns the world's biggest collection of premium liquor brands plus Guinness. Hayes buys it for the simplest reason in his book: AI can't replace it. "It's not going to get disintermediated unless AI can figure out a way to help you forget all of your troubles better than having a cocktail with a friend." If anything, AI helps it — cheaper marketing and back-office work means fatter margins.
The stock is cut in half from its 2021 peak for two reasons that are both fading. First, COVID pulled drinking forward (people were paid to sit home and drink), so the comparison years were fake-good. Second, investors panicked that weight-loss drugs would kill alcohol demand — but Hayes notes 85% of people quit those drugs within two years. Meanwhile the business still throws off $3 billion of cash a year, earns 13.4% on the capital it employs (FY2026), and grows double digits in Africa, Europe and South America. The one real problem is the US tequila business, which the new CEO — Dave Lewis, nicknamed "drastic Dave" for the turnarounds he ran at Tesco and Unilever — is fixing.
His summary: it's "trading like it's going out of business" while generating billions, so the downside is protected ("a large enough margin of safety") even if people permanently drink less — because they're drinking better, and Diageo is the premium leader at 1.4× the revenue of its next competitor. When the AI bounce rolls over and money looks for somewhere to hide, he expects Diageo to take its next leg higher.
46:40AI is going to help businesses like Diagio, which is a leading purveyor of high-end spirits and Guinness beer, and it's not going to get disintermediated unless AI can figure out a way to help you forget all of your troubles that's better than having a cocktail with a friend at a sports match because they were a huge sponsor of the World Cup and Guinness was flowing everywhere.
In short: The column's key contrarian-cheap name (Casamigos, Guinness, Johnnie Walker). Earnings multiple "languishing at 2009 levels" — now tobacco-like. Big emerging-market/India presence still sees healthy demand; new CEO to unveil a fresh strategy later this summer, including more affordably-priced new products. "Bad news is priced in."
Diageo makes Casamigos tequila, Guinness and Johnnie Walker. Its stock has been hammered because US spirits sales have fallen four years running and investors now fear alcohol is in slow, permanent decline — the way cigarettes are. So they've marked the shares down to the same cheap "terminal-decline" valuation as tobacco companies; Diageo's earnings multiple is back at 2009 levels.
Ryan's argument is that this is overdone. A lot of the drop looks like people being priced out (bars now charge $20 for a cocktail) rather than swearing off drink for good — and canned cocktails aimed at younger drinkers are selling briskly, which says Gen Z still wants to drink. Diageo also has a big, still-growing business in emerging markets and India, and a new CEO is about to lay out a fresh plan this summer with cheaper new products. In short: the bad news is already in the price, making Diageo the standout cheap name — one to own as part of a balanced mix, not to pile into.
In short: Below its 200-week MA, Hall-of-Fame brands (Johnnie Walker, Guinness, Smirnoff), washed-out capitulation score. Looks like a value trap but it's the quant momentum game (long high-mo / short staples); a quarter-end rebalance + inflation bounce reverses the seesaw.
Diageo owns Hall-of-Fame liquor brands (Johnnie Walker, Guinness, Smirnoff) and trades below its 200-week moving average — deeply washed out. The young-people-drink-less story is real and well-known, which makes it look like a "value trap" (like Nike). But he argues the bigger force is a quant game: funds go long high-momentum semiconductors and short low-momentum staples, mechanically suppressing names like Diageo. When the quarter-end rebalance and an inflation bounce flip that seesaw, the staples snap back.
48:54So when I sat down with Charlie Munger in Omaha, this is Buffett's like right-hand man for years. He's just passed away in recent years. There's a famous line. He said, Larry, never ever tell anyone your problems. 90% of the people really don't care. The other 10% are glad you have them, right? And he was so funny because he's talking about things like Diageo, where if you can buy a world-class brand that is below its 200-week moving average, that has Johnnie Walker, Guinness, Smirnoff, and we're at a two, three-year period where people are already discounting the value
In short: Below its 200-month MA, cheapest in decades — "category-five" capitulation; Hall-of-Fame brands (Johnnie Walker, Guinness, Smirnoff) à la Buffett.
Diageo owns top global liquor brands — Johnnie Walker, Guinness, Smirnoff. The stock is the cheapest it has been in decades, trading below its long-term average price trend (he points to it being below its "200-month moving average," a multi-decade smoothed price line — meaning it's at a historic low).
He describes the selling as a "category-five hurricane" of capitulation — the point where the last discouraged holders give up and dump shares, which usually marks a bottom. His logic is Warren Buffett's: buy hall-of-fame brands when they go on sale. (The bear story — young people drink less — is real but, he argues, already in the price.)
15:52How good is it for the retail investor at these valuations? The great thing about this year is the tax-loss basket. You can buy Diageo below its 200-month moving average, cheapest valuation in decades. You're talking about Johnnie Walker Blue, one of the great Guinness brands in the world, and Smirnoff. There's a tale of two cities. There's 32 trillion in the Nasdaq 100. 3 years ago today it was 12.3 trillion.
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