Diageo: Is All the Upside Priced In?

So we had some bad earnings reports Friday. The conventional wisdom is that the credit crunch is leaking into the industrial U.S. economy and consumer spending. I have to say, that today simply felt like an emotional and volatile day. I wouldn't be surprised if in a couple of weeks everyone is talking about how the Fed will come to the rescue.

My big fear is not U.S. stocks, it's the stock market bubble in China. The Chinese stock market (the one locals participate in) is up so much that it is starting to become due for a collapse under-its-own-weight type of crash. The Chinese government officials know this and are trying to slow the bubble without creating a crash but I think they are too late. What will really cause the big global slowdown/crash in financial markets if one comes? It will be a collapse of the Chinese local stock market that drives prices down 50% and cuts both local Asian consumption and Chinese industrial investment. So what am I doing? I'm starting to lighten up on my "China Play" stocks. One name I haven't sold yet but will likely sell next week if it's up at all is Diageo (DEO) ($90.30). I think Diageo is a great company and I think the world will continue to buy their products (I know I like my Guinness). However, at current prices I think the upside is priced into this company. I'm happy to be wrong and miss out on the next 10-15% move up in this company. But if the dollar rises and China falters, I'll be buying Diageo back at a better price.

Disclosures and Confessions: I own DEO. I may sell next week but that will depend on the price of Diageo shares. Among Diageo products, I like Harp and Guiness but not Jose Cuervo.