After falling up to 45% in 2025, are these now the best stocks to buy in 2026?
Market downturns and managerial mistakes have sent these stocks plummeting, but are they now potentially some of the best to buy for a long-term recovery?
Posted by Zaven Boyrazian, CFA
Published 22 February
You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services.
When it comes to finding top stocks to buy, often the best place to start is among the biggest losers. Why? Because even when shares fall for a good reason, investors can often overreact, turning a once-overvalued stock into a bargain buying opportunity.
Looking at some of the weakest performers in 2025, Diageo (LSE:DGE) stands out as a frail player, having dropped around 34%. And Severfield (LSE:SFR) has seen its market-cap shrink even further by 45% over the same period.
Diageo’s turnaround potential
Let’s start with the FTSE 100’s leading beverages business. Diageo’s been mired by adverse market conditions alongside poor strategic decisions from management. But with a new leader at the helm since 2026 kicked off, the company’s already making some radical moves to change its fate.
Portfolio optimisation efforts are already underway, with several of the group’s underperforming brands now under review for potential divestments. No new major disposals have yet been confirmed in 2026. However, such moves would rapidly raise some welcome liquidity to tackle outstanding debts while simultaneously refocusing the business on its best brands.
Of course, divestments also carry significant execution risks. There’s no guarantee Diageo will be able to get a fair price and may end up destroying shareholder value in the process. At the same time, with younger generations seemingly drinking less, it introduces some notable long-term demand uncertainty.
Nevertheless, with the stock trading at just 11.6 times forward earnings following its multi-year share price decline, that might be a risk worth considering.
Engineering steely resolve
Severfield, meanwhile, is another international enterprise hit hard in recent years. As the UK’s largest steel contractor, the business has been hit with a number of headwinds.
Rising commodity prices alongside US tariffs have been squeezing profit margins. And the impact has only been compounded by soft construction sector activity due to higher interest rates. The result has been a sharp decline in sales and a complete collapse of underlying operating profits.
However, the firm’s fortunes could be about to change. With interest rates still on a steady downward trajectory, commercial infrastructure projects have started ramping back up again.
That’s already translated into some early recovery signs for its order book, with management highlighting attractive large-scale projects landing in its 2027 fiscal year (ending in May). And with the UK government also outlining new infrastructure spending ambitions in the coming years, Severfield could be positioned for a multi-year recovery.
What’s the verdict?
To say which stock is the best is very subjective. But between these two fallen icons, Diageo currently looks more interesting, in my opinion. The business appears to have notably more levers it can pull to get things back on track, while Severfield appears more dependent on an external market recovery beyond management’s control.
Diageo shares plunge another 7% on grim results – buying opportunity or value trap?
Diageo shares are falling yet again as 2026 interims disappoint investors this morning. But Harvey Jones wonders if we’re finally looking at the turning point.
Posted by Harvey Jones
Published 25 February
You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services.
Investors who thought Diageo (LSE: DGE) shares were finally ripe for a recovery have had a brutal wake-up call today (25 February), as full-year 2026 interim results brought yet more bad news. How long can this go on?
I’ve personally bought shares in the FTSE 100 spirits giant five times since the meltdown began in November 2023, triggered by a profit warning as sales in its Latin American and Caribbean market slumped. Despite being one of Britain’s most admired blue-chips, a globally diversified operation with a fantastic array of drinks brands, the news just keeps deteriorating. So is today’s dip the end of the road, or the start of something special?
Serial FTSE 100 struggler
A word of warning. My glass has always been half full with Diageo. Every time the shares have fallen in the last two-and-a-half years, I’ve added another chunk to my SIPP. Today, its glass looks pretty empty. Yet I’m still tempted.
This morning, the Guinness and Johnnie Walker maker cut full-year 2026 guidance for the second time in three months, with organic net sales expected to fall by 2%-3%. Strong growth in Europe, Latin America and Africa was more than offset by sluggish US sales, where cash-strapped consumers are trading trade down from Diageo’s premium brands to cheaper alternatives. Chinese white spirits also continued to struggle.
Net sales fell 4% to $10.5bn in the six months to 31 December. Adjusted operating profit slipped 2.8% to $3.3bn. For me, the killer blow was news that Diageo slashed its dividend in half, from 40.5 US cents per share to 20 cents.
That’s a real blow, especially as the shares had started to stir, rising around 10% over the last month. Now they’re down 15% over one year and a painful 48% over three.
Dave Lewis must turn this stock around
I suspected the first results under new CEO Dave Lewis might prove sticky. Lewis is best known for his turnaround at Tesco. He began there with a bout of so-called kitchen sinking, getting the bad news out early to reset expectations. I wondered if he might try something similar here. To a degree, he has.
I’m deeply disappointed by the dividend cut. The one consolation of a falling share price was the prospect of a higher yield, which was nearing 5%. Now we’re back around the old 2%. Lewis will have to justify that sacrifice by delivering bags of growth, and hiking the dividend when the good times return. Assuming they do.
He insists he already sees significant opportunities to act more decisively, sharpen competitiveness and broaden the portfolio to drive higher growth. Savings from slashing the dividend will strengthen the balance sheet and boost financial flexibility. Let’s hope he’s right.
Diageo shares now trade on a price-to-earnings ratio of 15.4. That looks good value, but then again it’s looked good value for sometime, and the news keeps getting worse. There may be more painful days ahead, and the lower dividend won’t ease the pain. But for long-term investors willing to sit tight, I still believe Diageo is worth considering. Let’s hope one day I’m proved right.
Leave a Reply