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