If Bond, James Bond, had a portfolio, and why wouldn’t someone so urbane not have one to supplement his civil servant salary, what would he buy?
If anyone could do some proper due diligence it would be Bond. Would he be as much of a risk taker in his portfolio as in his work persona?
Shaken, not stirred
We all know James’ fascination with the vodka martini, but his favorite drink was the Vesper and the recipe was debuted in Casino Royale as a mixture of Gordon’s gin, vodka, Kina Lillet (a French aperitif with quinine), and lemon peel. He called this concoction a Vesper after beautiful Bond girl, Vesper Lynd. Which company makes these ingredients for the Vesper and the vodka martini?
None other than Diageo plc (ADR) (NYSE:DEO), the world’s largest spirits company, owns Gordon’s gin and Smirnoff and Ciroc vodkas. Diageo plc (ADR) (NYSE:DEO) trades at a forward P/E of 16.25 with a 1.90% yield. It’s also headquartered in Bond’s home base, London, but operates in 180 countries.
The company has fourteen strategic premium brands of which six are number one brands in their categories globally: Johnnie Walker scotch, Jose Cuervo tequila, Crown Royal Canadian whisky, Smirnoff premium vodka, Guiness stout, and Baileys liqueur. Most of its eight other strategic brands are number two in specific markets.
On its innovation webcast on May 9, the company noted that the new markets they are aggressively targeting are women (the Bond girls will be so pleased!), the global emerging middle class, and premium consumers. How will they do it… confectionery vodka in the U.S., like caramel and whipped cream flavors to attract women, premium limited edition Johnnie Walker collections like their Explorers Club, and more use of cans for ales and stouts.
More interesting is that the innovation R&D budget is only 0.01% of sales while accounting for 50% of Diageo plc (ADR) (NYSE:DEO)’s growth for the last five years. The company’s Long Term Science and Technology program has entered into a collaboration with DuPont Fabros Technology, Inc. (NYSE:DFT)‘s R&D division. While it’s still hush-hush, some exciting developments should come soon.
“We see ourselves as selling objects of desire. Like Cars. Clothes. Perfume. Watches. What you drive, what you wear and what you drink says something about you,” as Chief Marketing Officer Andy Fennell said on the innovation webcast. Aspirational is the keyword for Diageo plc (ADR) (NYSE:DEO), as is the Bond lifestyle, and that’s why Diageo plc (ADR) (NYSE:DEO) is a buy going forward.
The man with the golden gun
Fifty years since the first film (soon up to 24 in the franchise earning $4 billion overall) and sixty years since the first Ian Fleming novel, Bond is still dapper as ever. Bond doesn’t just drink and seduce women; he also drives cool cars, wears bespoke suits, gambles, and wields firearms. His service weapon is well known as the Walther PPK, a German pistol manufactured in the U.S. under license of Carl Walther Sportwaffen by Smith & Wesson Holding Corporation (NASDAQ:SWHC). Smith & Wesson Holding Corporation (NASDAQ:SWHC) has pulled back 20% from its 52-week high of $11.25, although the stock had quite a run in the last two years, up 40% in the last year alone. It is nowhere close to its all time highs of $20 in 2007, however. Its floor would be below $5 historically. Considered a member of the defense industry, it sells not just to individuals but also to the military, governments, and law enforcement.
Several Motley Fools caution that the individual gun market is close to saturation but the stock is trading at a forward P/E of 8.41 with a 0.26 PEG. A 19.70% short interest seems worrisome. However, gun stocks are heavily shorted after every gun tragedy as institutions pull out. They then ramp higher as nervous citizens buy and hoard firearms before another gun control debate.