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The FTSE 100 index of leading UK shares hit an all-time high earlier this year.
It has fallen since then, but after a 14% gain from last month, now looks tantalizingly close to getting back to its former heights. Over time, I think it could move even higher. Here are three shares in the index that might help it get there.
Diploma
It is unusual to see a FTSE share soar 19% within one day. But that is what happened today (20 May) after Diploma (LSE: DPLM) served up a very strong set of interim results.
The conglomerate reported first-half revenue growth of 14% year on year and basic earnings per share soared 66%. Free cash flow was 26% higher. The company grew its interim dividend per share by 5%, meaning that it was covered close to four times over by basic earnings.
The business has proven that its model can be both profitable and drive growth. And, despite its strong performance in recent years, I think Diploma might only be getting started. With first-half revenues well below £1bn, I see substantial room for growth.
But a price-to-earnings (P/E) ratio of 50 is way too high for my comfort. The FTSE firm faces risks from tariff disputes and fragile demand in some areas. That helps explain why its seals division recorded no organic growth in the first half, unlike the life sciences and controls divisions.
But while I will be waiting for a lower share price before buying, if Diploma keeps performing brilliantly, I think it could help fuel FTSE 100 growth.
Diageo
A different type of growth could come from recovery in a struggling business. If distiller and brewer Diageo (LSE: DGE) can simply get back to its share price of one year ago, that would mean a 31% gain from today’s level.
That share price fall did not happen for no reason, of course.
From weak Latin American demand to a challenging market for pricy spirits amid economic uncertainty, Diageo has been dealing with fires on multiple fronts – and looks set to keep doing so, risking profitability.
But the company’s portfolio of unique premium brands, from Johnnie Walker to Guinness, give it strong pricing power. It has a global distribution system and there are always lots of thirsty customers looking for a beer or spirit.
WPP
One FTSE 100 share I bought during a recent stock market downturn is advertising network group WPP (LSE: WPP).
With a 28% fall in the share price over the past year – even allowing for a 23% surge since last month – the company has clearly lost some fans in the City.
Is that surprising? After all, a weak economy threatens advertising budgets, while AI potentially poses an existential crisis for large parts of the ad industry that may now become redundant.
Still, in crisis there can be opportunity. AI might allow WPP to cut costs, helping profit margins.
Meanwhile, WPP has sizeable economies of scale, a large client roster, and creative capabilities I think for now at least remain unthreatened by AI.
Its P/E ratio of 12 means that, on that valuation metric at least, it sells for less than a quarter of the current Diploma valuation.
