The FTSE 100 reached 11,000 points on 31 July, a 20% gain from the previous year. But while much of the index has risen, some top performers from the past have fallen out of favor. Babcock International and Diageo stand out as two stocks that still trade at a discount, despite their potential to rebound.
Babcock: a defence bargain with a long-term play
Babcock, one of Britain’s largest defence firms, trades at a forward P/E of 17.1, well below the 27 average in the European defence sector. Its PEG ratio — 0.3 — suggests the stock is undervalued when growth is considered. The company offers engineering, training and manufacturing services in defence and civil nuclear projects. It’s also involved in building new reactors and long-term maintenance contracts.
Global arms spending rose 3% in 2025, driven by heightened geopolitical tensions. This is good for a firm like Babcock. However, risks remain, particularly in project delivery and product reliability. Mistakes in such critical sectors can damage sales and reputation. Still, Babcock’s track record suggests it has managed these risks well over time.
Diageo: comeback potential in a struggling sector
Diageo’s shares have declined 54% over five years, wiping out nearly half the value of a £10,000 investment made in August 2021. That’s because the company has struggled as consumers cut back on premium alcohol purchases post-pandemic. But the recent 8% jump in its share price over the past month has raised eyebrows, suggesting a recovery might be starting.
Diageo remains a major player in global spirits and beer markets. Its potential to bounce back hinges on a shift in consumer demand and improved performance in key markets. If the recent rise is any indication, it may be worth another look.