When Diageo (LSE: DGE) shares crashed from 3,245p to 2,850p on 9 November last year, I knew this was the moment I’d been waiting for.

I love it when my favourite blue-chips plunge, as I see this as a brilliant opportunity to buy them on the cheap. It’s not so great if I already own them, but that doesn’t stop me from averaging down.

Happily, I didn’t own Diageo shares but had wanted to for yonks. They were always too pricey, trading at 24 or 25 times earnings. Now they were at 17 to 18 times. Bargain! Better still, the typical yield of 2% had jumped past 3%.

FTSE 100 bargain buy

The Diageo share price had slumped on bad news from Latin American and the Caribbean, a market that makes up around 11% of earnings. Cash-strapped drinkers were trading down to cheaper local makes, a strategic blow after Diageo spent years positioning itself as a premium drinks brand. Inventory problems didn’t help.

In theory it’s great being a globally diversified company, because when one region struggles, another can compensate. It’s not so good when one region sinks the entire share price.

Diageo’s North American and Africa markets were starting to show “gradual improvement” and European growth was strong. Asia Pacific was doing well despite a slower-than-expected recovery in China. Markets didn’t care.

The shares started to recover and I was applauding my timing when investors gave the thumbs down to Diageo’s 30 January update. Today I’m down 6% overall, offset by April’s dividend of £28 that bought me one whole share lifting my total to 107. 

My £3,000 is worth £2,865. That’s neither here nor there in the longer run, which is my investment timeframe. I think I’m nicely placed for the Diageo recovery, assuming it comes at some point.

Top recovery stock

My only question is whether to buy more today (I’m certainly not selling). Over 12 months, the stock is down 19.05%. It’s still in bargain territory.

I do have one major concern. Gen Z seems to be drinking a lot less booze than its predecessors. It’s like they want to live forever, or something.

If there really is a generational shift, big alcohol could one day look like big tobacco. Lots of dividends, little growth. I don’t think it will come to that personally. Gen Z’s offspring will probably tear into the booze (if Gen Z has any children, that is). I also worry that Diageo’s net debt is on the high side at $21.48bn.

Yet I can’t resist today’s greatly reduced valuation of just 16.59 times earnings and 2.99% yield. Diageo has a strong track record of dividend hikes. When interest rates fall and the economy recovers, I expect sales and the shares to rise, regardless of Gen Z’s drinking habits.

I’ve only got a small stake in this FTSE 100 stalwart and it’s still cheap. I’m ready to top it up.