A new quarter and a new record high for the S&P 500. Indeed, while the FTSE 100 is timidly fluctuating around 200 points below its all-time high, across the pond the S&P 500 hit 1973 points – its highest ever level.
So, with the FTSE 100 (FTSEINDICES: ^FTSE) — like the S&P 500 — being a value weighted index, which means that the bigger the market capitalisation of a company, the bigger its impact on the index level, here are three of the biggest FTSE 100 companies that could help it to reach record highs.
HSBC
The biggest company in the FTSE 100 by market capitalisation, HSBC (LSE: HSBA) (NYSE: HSBC.US) has a major impact on the FTSE 100 when its share price moves. However, the Asian-focused bank remains undervalued at current levels. While the FTSE 100 trades on a P/E of 14.1, HSBC’s P/E is just 11.2. Further evidence of its good value at current price levels can be seen in its dividend yield, which is an impressive 5.2%. With earnings per share (EPS) set to grow by 9% in each of the next two years, HSBC could be a winning investment and could help the FTSE 100 to push past 7,000 points.
Lloyds
HSBC’s sector peer, Lloyds (LSE: LLOY) (NYSE: LYG.US) also appears to be undervalued at current price levels. Although its yield is only 1.9% at present, it is forecast to be as much as 4.4% next year. That’s because Lloyds’ board is aiming to pay out up to 70% of profits as dividends and, with earnings forecast to increase by as much as 10% next year, Lloyds could once again become a great income play. Indeed, as one of the ten biggest stocks on the FTSE 100 by market capitalisation, it could help the index reach record highs.
Diageo
Perhaps surprisingly, Diageo (LSE: DGE) also features among the ten biggest stocks on the FTSE 100 by market capitalisation. Unlike Lloyds and HSBC, though, its current valuation is above the FTSE 100 P/E of 14.1, with shares in Diageo trading on a P/E of 19.2. However, with EPS growth of 8% forecast for next year and the potential for earnings surprises as a result of an improved macroeconomic outlook for one of Diageo’s key markets, China, shares in the company continue to have potential. Indeed, they have held the FTSE 100 back in the first half of the year (they are down 5% year-to-date) but could reverse that fall to allow the FTSE 100 to follow its American peer into new, unchartered territory.
