Could the Diageo share price beat the FTSE 100 and help you retire early?

Does Diageo plc (LON: DGE) offer stronger growth potential than the FTSE 100 (INDEXFTSE:UKX)?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

With the FTSE 100 experiencing a period of heightened volatility, defensive shares such as Diageo (LSE: DGE) could become increasingly popular. The sale of alcoholic beverages is less cyclical than a great number of other industries, and this may translate into more reliable sales and profitability for the business over the medium term.

Of course, Diageo also offers strong growth potential. Alongside another share which seems to have a bright future and that reported positive results on Wednesday, could it improve your prospects of retiring early?

Improving outlook

The stock in question is plastic products design and engineering business RPC Group (LSE: RPC). It released half-year results which showed a rise in revenue of 7%, reaching £1,892m. It benefitted from acquisitions, as well as organic growth of 3.2%. Adjusted operating profit increased by 3% to £214.3m, with polymer headwinds offset by organic growth.

The company’s performance in China and the US was relatively strong as a result of higher added value products. The company has continued to invest in its sustainability proposition, with the acquisition of UK-based recycler PLASgran positioning the business as one of Europe’s lead recyclers. It also continued to dispose of non-core businesses as it seeks to refocus its efforts on its core operations.

With RPC forecast to post a rise in earnings of 5% in the current year, followed by further growth of 7% next year, it appears to have a bright future. Its price-to-earnings growth (PEG) ratio currently stands at 1.6, which suggests that it may deliver improving investment performance over the long run.

Defensive growth

As mentioned, Diageo has defensive characteristics. It has a track record of being able to generate relatively impressive levels of sales and profit growth in operating environments that are generally unfavourable. For example, an economic slowdown may lead to a fall in demand for a wide range of products, but alcoholic beverages may remain popular. This could be relevant given the uncertain prospects for the world economy, as tariffs and rising US interest rates start to bite.

Diageo, though, also offers strong outright growth prospects. The company’s current strategy is causing it to refocus its efforts on core brands where it believes it may have a competitive advantage versus sector peers. Although downsizing its brand portfolio may reduce its level of diversity, it could allow it to concentrate its efforts in areas where its capital can most effectively be utilised.

As such, the prospects for the stock appear to be relatively sound. It could provide investors with a favourable mix of defensive and growth characteristics, while the long-term tailwind, which may be provided by emerging markets, could have a positive impact on its growth rate. Therefore, it could be worth buying now, offering the potential for FTSE 100 outperformance over the coming years, in my opinion.

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 considered so you should consider taking independent financial advice.

Peter Stephens owns shares of Diageo. The Motley Fool UK has recommended Diageo and RPC Group. 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.

More on Investing Articles

Young woman working at modern office. Technical price graph and indicator, red and green candlestick chart and stock trading computer screen background.
Investing Articles

Should I invest in the FTSE 100 – or try to beat it?

Our writer has the option of investing in a FTSE 100 tracker fund. So why does he choose to buy…

Read more »

Young black woman walking in Central London for shopping
Investing Articles

£1,500 to invest in a Stocks and Shares ISA? Here’s how I’d do it

Our writer has been investing in his Stocks and Shares ISA. Here he details how he could put £1,500 in…

Read more »

One English pound placed on a graph to represent an economic down turn
Investing Articles

2 top FTSE 100 shares I’d buy before the market rebounds!

Christopher Ruane identifies a pair of FTSE 100 shares that have both tumbled in the past year and that he…

Read more »

Business development to success and FTSE 100 250 350 growth concept.
Investing Articles

Here’s why the next bull market may have already begun

The UK stock market has taken the Bank of England's interest rate hike in its stride and green shoots suggest…

Read more »

Gold medal
Investing Articles

No contest! Here’s my stock of the week

An update from this company offered some relief from the economic gloom. It's this Fool's stock of the week.

Read more »

Cogs turning against each other
Investing Articles

Scottish Mortgage shares are back on the rise: is now the time to jump onboard?

Scottish Mortgage shares have risen over 25% in the past 30 days. This Fool takes a look at why and…

Read more »

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop
Investing Articles

Why do Lloyds shares seem so cheap?

Lloyds shares have been losing ground and now look cheap on some valuations. So why has our writer removed the…

Read more »

Investing Articles

How to invest in shares to help beat inflation

Soaring prices could well outstrip our investing returns this year. I think it's more important to find shares to beat…

Read more »