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Diageo: the muse in a bottle

By Alistair Strang, Trends and Targets

Having spent 2012 being brushed with leukaemia and a festive season stricken with pneumonia, nothing seemed more sensible to aid ongoing recovery that a ski trip. 

For obvious reasons, all the inconvenient paraphernalia associated with the sport remained safely at home in Scotland. 

This particular vacation relied on staying indoors, listening to friends’ tales at lunchtime and evenings while field testing various products produced by Diageo (LON:DGE) as often as possible.

Thankfully, skiing holidays do not rely on the sun going down over a yard arm and with ample supply of Black Label and Morgans Rum, I can report Diageo remain up to the task of keeping me happy.

Their share price chart carries a similar cheery disposition. 

I’ve shown a five-year version below.  If we extrapolate movements from 1998, when Diageo’s listing commenced, we can prove’ a long term target of 1,858 pence. 

Typically, this is one of these nonsense numbers we rarely expect a share to achieve but Diageo managed to reach that point last November and December. It even exceeded it on several occasions before entering the current fall back.

As a result of this picture, we’re inclined to take a deep breath and examine things from a near-term perspective as the share has proven it can outperform a target. 

We can now show a further target of 2,032 pence, but my inclination is to hunt for near- term drop potentials.

I’ve drawn a thick red line. Should the price close below this point – currently at 1,785p – some relaxation can be planned for and I can calculate a drop target at 1,683 pence. 

This is where the fact Diageo exceeded my suggested 1,858 pence becomes interesting. An expectation of the share outperforming permits me to imagine the price hitting 1,683 pence, before commencing a longer term recovery. 

Commonsense will tend to suggest a further stab at the 1,858 pence level will eventually break, allowing further maturity in the price toward a longer term 2032.

Of course, there’s a sting in the tail. Along the bottom of the price is a blue line. 

Some people will make the assumption that a breach of the red line will allow the price to relax towards the blue line.

Personally, I have some doubts based on its historical performance and tend toward optimism.  But if the scenario comes to fruition and 1,683 pence breaks, any reason for optimism would vanish.

However, it’s an interesting share and the price is on the verge of presenting something I’d currently view with some favour. Then again, I’ll admit to bias as I do like Black Label rather a lot.

Finally, a small update on how our own particular new brand name Trends and Targets is doing. It’s worth visiting our website and clicking the Targets Met option on the top row. 2013 is proving a record breaking year from our viewpoint and leukaemia is also behind me.


Alistair Strang  

Trends and Targets provides commentary and observation from a unique trend perspective. Trends and Targets  make no recommendation on specific items and do not provide financial advice. Their input should be regarded as part of the research an investor should make before coming to a decision.

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