Why Diageo plc And HSBC Holdings plc Are Set To Be The Surprise Packages Of 2015


Investor sentiment in Diageo (LSE: DGE) (NYSE: DEO.US) has improved markedly in recent months following a period of disappointment for the company’s share price. In fact, shares in Diageo are up by 9% in the last six months while the FTSE 100 has risen by just 2% and, looking ahead, Diageo could continue its outperformance of the wider index.

That’s because it offers a very appealing mix of defensive qualities and excellent long term growth potential. For example, its industry remains one of the most defensive on offer, with alcohol sales being lowly correlated to macroeconomic performance. In addition, Diageo also has a wide range of brands so that, should consumer fashions and tastes change, it is unlikely to see a major fall in its top or bottom lines.

As well as this defensive appeal, Diageo also offers long term growth potential. Its brands are among the most desirable in the emerging world and, with the wealth of the developing world set to soar in the long run, it could be well-placed to benefit from an upsurge in demand moving forward. As such, now could be a good time to buy a slice of Diageo and it could be a strong performer during the course of the year, as investor sentiment continues its upward momentum.


Investor sentiment in HSBC (LSE: HSBA) (NYSE: HSBC.US) continues to be relatively weak. For example, the bank has seen its share price rise by just 1% this year, while the wider index is up 4%. However, HSBC could be a surprisingly strong performer this year, since its share price appears to offer stunning value for money at the present time.

For example, HSBC has a price to earnings (P/E) ratio of just 10.9, which compares very favourably to the FTSE 100’s P/E ratio of 15.7 and highlights its upward rerating potential. That’s especially the case because HSBC is forecast to grow its bottom line in-line with the wider index, with earnings growth expected to be 6% in the current year, and 8% next year.

In addition, HSBC also yields a highly enticing 5.7% at its current price level and, with dividends per share expected to rise at a rapid rate over the course of the next year, it could be yielding as much as 6.3% in 2016. As such, investor sentiment may not remain weak for long and HSBC’s share price could soar this year, as investors continue to seek out high yields while interest rates remain low.

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Peter Stephens owns shares of HSBC Holdings. The Motley Fool UK has recommended HSBC Holdings. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.