One UK stock to join HSBC in the £100bn club

Jon Smith reveals the UK stock that he believes has the most potential in the FTSE 100 to reach a market cap of £100bn in the future.

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There are currently four UK stocks that sit with market caps of £100bn or greater. HSBC is one of these companies. Although there aren’t any other banks or finance-related stocks that I think will be joining HSBC anytime soon in this club, there’s a separate company that I think could do so.

A potential newcomer

I’m talking about Diageo (LSE:DGE). At the moment, the market cap is just above £70bn. So we’re going to need to see this grow by around 43% in order to join the famous club.

The first thing an investor might wonder is if the business has ever achieved this feat in the past. From my calculations, Diageo has never hit £100bn, but in 2021 and 2022, had periods where it was valued at close to £90bn.

This is encouraging, as it shows that the capacity is there to certainly reach £90bn again and potentially have a run at £100bn in the future. In other words, it’s not completely unrealistic to think that this business could join the club.

Why it could happen

The company’s strength and breadth of earnings is something that’s very impressive. It is genuinely a worldwide entity, be it producing tequila in Mexico or pulling pints of Guinness in Ireland. It’s in a unique position that it can use revenue from different geographies at different price points.

This helps to shelter it from economic headwinds. If the UK underperforms, revenue from Asia can help to offset the drop. If customers are more cautious about buying high value alcohol, it can rely on beer and cheaper budget alternatives in the range.

As we move forward, I think this could help the firm have a higher share price and thus a larger market cap. Investors will likely buy the stock as a defensive play. Or even if the global economy booms, it should still perform well as higher value brands see sales surge.

I accept that a 43% jump isn’t going to happen overnight. But I’m a long-term investor, so even if it takes several years, I think it’s a return that is well worth being patient for.

Why it might not happen

The stock is down 17% over the past year, which is a large move by historical standards. Part of this has been driven by the sad death of the CEO, Ivan Menezes, which came as a surprise. He had been the CEO for many years and so the impact of a sudden death rocked both employees and shareholders.

I believe there’s some uncertainty that the strategy and direction might be lost, or the company could be in the doldrums for a while. That’s a key factor that could stop or delay the march to £100bn.

I feel Diageo will get to be a £100bn market cap company in years to come. On that basis, I think investors should consider adding it to their portfolios, using the current dip as a good entry opportunity.

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.

HSBC Holdings is an advertising partner of The Ascent, a Motley Fool company. Jon Smith has no position in any of the shares mentioned. The Motley Fool UK has recommended Diageo Plc and HSBC Holdings. 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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