The FTSE 100 index of leading stocks has underwhelmed so far this year as worries over new trade tariffs and their impact on corporate earnings have dented investor confidence. With uncertainties over future US trade policy rolling on, the index may continue struggling to make substantial headway.
That said, there are certain FTSE 100 stocks I’m optimsitic could rise strongly this year even if such ambiguities roll on. Diageo (LSE:DGE) is one blue-chip share I feel could be ready to rocket.
Under pressure
Drinks giant Diageo has traditionally been considered a lifeboat in troubled times. This reflects the resilient nature of alcohol demand across the economic cycle, allied with the brilliant brand power of the company’s products.
Yet these stabilising effects have greatly diminished of late, pulling Diageo’s shares lower. Weak consumer spending has spread in key markets. This pushed organic net sales only 0.6% higher in the last financial year (to June 2024).
Fears over US trade tariffs, and what this could mean for important lines like its Don Julio Mexican tequila, have also weighed on the stock.
Uncertainty over these may linger going forward. However, news in another area — the impact of slimming and diabetes drugs on alcohol demand — has been more encouraging. Further reassurance here alone could help Diageo’s share price spring back to life.
Smith speaks
Concerns about weight-loss drugs and their potential to reduce alcohol cravings have played a major role in depressing Diageo’s shares over the last year. These were worsened by high-profile fund manager Terry Smith exiting the drinks giant in August 2024.
In the Fundsmith Equity Fund’s annual letter in January, Smith acknowledged problems caused by recent management changes at Diageo. But he dedicated most of his remarks to the threat from GLP-1 drugs. he noted that “we suspect the entire drinks sector is in the early stages of being impacted negatively by weight loss drugs.”
He added that “it seems likely that the drugs will [also] eventually be used to treat alcoholism.” This suggests another major market for these revolutionary pharmaceuticals.
Overstated problem?
However, recent pharma sales data suggests estimates for these drugs’ wide-scale adoption — and the subsequent impact this could have on alcohol demand — may have been overstated.
On Wednesday (7 May), Novo Nordisk announced that Wegovy sales were down 12.6% in Q1 from the previous three-month period. It also said sales of the product haven’t grown in the US since February.
Novo, which also manufactures Ozempic, scaled back its full-year sales forecasts as a result.
This follows on from poor sales numbers from rival Eli Lilly in recent months. The Zepbound and Mounjaro manufacturer missed sales forecasts for a second straight quarter back in February.
A FTSE recovery stock?
There’s no doubt that competition and supply chain challenges have also played a role in these underwhelming performances. And so it may be premature to dismiss the massive growth potential of these drugs.
Yet those recent sales numbers demand some pause for thought, in my opinion. Indeed, they may prompt a re-rating of Diageo shares if soft revenues numbers continue to flow through.
Should the more reassuring news on US trade tariffs in recent weeks also continue, I think this FTSE 100 stock could soar.
