Missed out on FTSE 100 member Diageo’s share price gains? Here’s what to do

Here’s why you may not be too late to capitalise on Diageo plc’s (LON: DGE) growth potential after a strong period for the FTSE 100 (INDEXFTSE:UKX).

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In the last month, the share price of Diageo (LSE: DGE) has risen by over 6%. Investor sentiment towards stocks in general has been strong, with the FTSE 100 gaining a similar amount during the same time period.

While this is positive news for investors in the stock and the index, other investors may have missed out on their gains. For them though, it may not be too late to capitalise on their future prospects. Alongside another stock with growth potential, there seem to be significant investment opportunities still available within the FTSE 100 and FTSE 250.

Solid outlook

While Diageo may not offer the highest earnings growth in the index, the beverages company has a relatively solid business model. Demand for its products is likely to remain robust in a variety of market conditions, and this may mean it offers less risk than some of its FTSE 100 peers.

This may be especially relevant given the volatility in the wider index that occurred in the earlier part of the year. Should economic data prove to be unfavourable, investor sentiment could come under pressure and mean that more stable stocks deliver outperformance.

Growth potential

Of course, Diageo’s bottom line is expected to rise over the next couple of years. It is due to grow by 6% this year and by 8% in the following year. This has the potential to boost investor sentiment in the stock, and while it has a price-to-earnings (P/E) ratio of around 26, its enticing risk/reward ratio means that it could outperform the wider index.

With the company’s dividends forecast to rise by over 6% per annum over the next two years, it could become an increasingly attractive income play. A dividend yield of 2.6% is ahead of inflation and may offer sustainable growth for the long run. As such, despite its recent share price rise, it does not appear to be too late to buy the stock.

Improving outlook

Also making gains in the last month has been global aviation support and aftermarket services provider BBA Aviation (LSE: BBA). The company released a positive trading update on Friday which showed that it has performed in line with expectations in the first four months of 2018. Revenue has risen by 9.7%, with like-for-like (LFL) revenue increasing by 2.9%.

The company has seen strong momentum in its Signature network, with recent investments improving its overall growth outlook. Having completed the refinancing of the company, it now appears to have a solid capital structure through which to deliver improved financial performance over the long run.

With BBA Aviation expected to report a rise in its bottom line of 8% this year and 7% next time, it seems to have a bright future. And with dividends per share expected to rise by 8% per annum over the next two years, it could become a solid income stock due to it having a forward dividend yield of 3.3%.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Peter Stephens owns shares of Diageo. The Motley Fool UK owns shares of and has recommended BBA Aviation. The Motley Fool UK has recommended Diageo. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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