Should I rush to buy these FTSE 100 giants at 52-week lows?

Most of us realize that FTSE100is up and trading near all-time highs — though not taking inflation into account — but the two index beasts are down. Diageo (LSE:DGE) and Rio Tinto (LSE:RIO) are pillars of the blue-chip index, but both stocks are trading just above their 52-week lows.

A depressed stock price creates buying opportunities, potentially taking your portfolio to new heights. But some stocks are cheaper for a reason. So are we looking at bargains or value traps?

Diageo

Diageo is a world leader in the production of premium alcoholic beverages, with a portfolio full of iconic brands, including Johnnie Walker, SmirnoffAND GuinnessFounded in 1997, Diageo has grown to become one of the largest spirits and beer companies in the world, with operations in more than 180 countries.

However, despite its strong market position, the company recorded a 0.6% decline in organic net sales in fiscal 2024, primarily reflecting weakness in Latin America and the Caribbean.

In recent years, inflationary pressures have been piling up on top of all this. In fact, running a soft drink brand — Sumacqua — I’ve seen this inflation with my own eyes — extract costs have gone up 40% between the last batches.

Returning to Diageo, there is reason to be optimistic. The London-based company continues to benefit from premiumisation trends in the drinks sector, with its premium-plus brands growing 4% in the last fiscal year.

Combined with a strong presence in emerging markets, particularly India and China, Diageo’s long-term growth potential remains intact.

In terms of valuation, with a price-to-earnings (P/E) ratio of 19.6 times and a price-to-earnings-to-growth (PEG) ratio of 7.4, it doesn’t scream value. However, the P/E ratio is lower than in recent years, and the dividend yield has risen to 3.2%.

Finally, the average price target for the stock is £27.66, which represents a small premium to the current price.

Rio Tinto

Rio Tinto is one of the world’s largest mining companies, with a portfolio of assets focused on iron ore, aluminum, copper and other minerals.

Rio Tinto’s falling share price primarily reflects falling iron ore prices and demand uncertainty, particularly from China. However, the company’s diversification into aluminum and copper offers growth potential given the expected shift to renewable energy.

While iron ore demand in China has already peaked, Rio Tinto’s strong positioning for future demand is changing due to its high-grade ore reserves, in particular the planned Simandou mine.

It’s not dirt cheap compared to its peers, trading at 8.2 times future earnings. But it’s a cyclical stock, and earnings projections can change dramatically and quickly.

And the average target price for the stock is £62.25, which is a 31% premium to the current share price. Combined with the 7.3% dividend yield, this could be an interesting investment opportunity.

Summary

So what’s my take on these two stocks? I think Diageo is still a bit pricey, but I expect it to eventually bounce back in terms of long-term growth prospects.

And Rio? Well, it could be like trying to catch a falling knife. Stocks could clearly rebound, as they have done before. But there is always the risk that this down cycle will be worse than the last.

Personally, I don’t plan on jumping into investing in any of these stocks, but I’ll definitely be keeping a close eye on the market.