No froth in this stock – and plenty to raise a glass to

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Good stocks can fall with the bad during a broad market selloff, which is why Diageo PLC deserves to be rescued from the recent wreckage.

The U.K.-based spirit, beer and wine producer and marketer has hit some serious bumps: The shares, which trade as American Depositary Receipts in New York, are down nearly 15 per cent since July and approaching their lowest level in about two years.

The selloff suggests that something has gone terribly wrong here. More likely, the market is overreacting to a few short-term disappointments, setting up a terrific buying opportunity for anyone willing to ride out a little turbulence over the longer run.

The company markets and distributes a diverse roster of products including Guinness stout, Smirnoff vodka, Johnnie Walker whisky and Dom Pérignon Champagne. It has long recognized that any significant growth will have to come from less mature markets beyond Western Europe and North America.

Through acquisitions and growth, Diageo now gets a third of its sales from developing markets in Africa, Eastern Europe and the Asia-Pacific region. The snag: Emerging market economies are struggling with slower growth, weaker currencies, higher inflation and rising interest rates, hurting discretionary spending, in general, and alcohol sales, in particular.

As a result, Diageo's earnings in the second half of fiscal 2014 fell more than 20 per cent from the previous year, on a per-share basis, marking the company's first decline in earnings in four years.

No wonder investors are grumpy – and the broader stock market decline has discouraged anyone from buying Diageo shares as they slide.

Why be the first?

The alcohol business is a very attractive long-term investment. One that is globally diversified among a variety of drinks looks particularly adept at navigating economic uncertainties.

Consider that Diageo's annual sales continued to rise during the last global financial crisis and recession, offering compelling evidence that people drink when they're feeling good and not-so-good. Earnings took a slight hit in 2007 and 2008, but the company remained solidly profitable.

However, investors had little appetite for anything during the bear market, and Diageo wasn't spared from the selloff. In 2007 and 2008, the shares fell 55 per cent and looked like a tremendous bargain to anyone willing to bet that the world's bars weren't about to go dry.

They didn't, of course, and the shares rose as much as 220 per cent during the recovery. Today's dip, though shallower, also looks like an attractive time to invest in a company that is economically bulletproof.

Sure, emerging markets are making investors nervous, but they almost always do. The iShares MSCI Emerging Markets exchange traded fund has fallen more than 10 per cent since the start of September, reinforcing that fast-growing developing countries seldom deliver a smooth ride. Yum Brands Inc., which gets more than half its sales from Chinese-based KFC and Pizza Hut locations, has moved sideways for over two years.

These aren't easy days for developing economies, but the longer-term argument still holds: If you want to tap into a growing population, rising affluence and young consumers, emerging markets are the place to be – whether you're selling soap, pizzas or vodka.

Admittedly, Diageo's shares haven't fallen to levels where they look cheap based on earnings. The price-to-earnings ratio is now 18.8, which is slightly higher than the 10-year average average of 17.7.

That means the shares could continue to slide if the earnings outlook doesn't improve. But at least you'll be collecting dividend income while you wait: The New York-traded ADRs are yielding an impressive 3.7 per cent, and Diageo has been boosting its dividend by an average of 8 per cent a year over the past five years.

Cheers to that.