In a world of AI and space exploration, the FTSE 100 feels like a sort of antique shop for investors. But those places can contain surprisingly valuable things.
It’s easy – and understandable – to be enchanted by the US stock market. UK investors, however, shouldn’t overlook the opportunities that are available closer to home.
What to look for?
When it comes to stocks, I’m not looking for growth at any price. I’m looking for high-quality businesses trading at reasonable valuations.
That doesn’t have to be something that’s promising to establish human life on Mars. But it does need to have a decent chance of making money.
More specifically, it has to have a good chance of making a lot of money relative to its current price. The good news is that’s easier to find in places other people aren’t looking.
When investors get focused on some big theme – like AI – steady compounders get treated like structural failures. And that’s what creates opportunities.
Over the long term, I’m hoping to do better with these stocks than by piling into more exciting names. And the FTSE 100 is one place I’m looking.
An overlooked gem
Investors don’t pay much attention to Smiths Group (LSE:SMIN). But it’s a quality industrial engineering firm focused on a couple of key divisions.
Its real strength lies in the mission-critical nature of its products. These include specialised mechanical seals for the energy sector.
When the cost of failure is high, customers tend to stick to suppliers that are known to be reliable. Smiths is one of these.
This creates a business model where over 70% of revenue comes from aftermarket services. These are high-margin and tend to be recurring in nature.
That’s the situation as it is right now. But I think there’s also reason to be positive about the company going forward.
Outlook
The aerospace industry is currently characterised by backlogs. There’s also a structural drive towards more energy-efficient aircraft.
That should be a very positive thing for Smiths over the medium term. But there are still risks to pay attention to.
Its end markets are often cyclical and this can mean there are downs as well as ups. The firm is also less diversified after a series of divestments, which could exaggerate this.
Right now, however, the company is making hay while the sun shines. It’s in the process of a £1bn share buyback programme – equivalent to 13% of the outstanding shares.
Whether or not now is the time to consider making a move, I think it’s definitely one for investors to study more closely. And it’s not the only FTSE 100 name in that category.
Long-term investing
My approach to investing is based on owning a business, rather than trading a stock. And that makes a big difference.
If FTSE 100 stocks stay cheap for a long time, that’s not a problem – it’s a gift. It’s a chance to buy more shares at attractive prices.
The nice thing about this approach is that it tends to work out over the long term. And it doesn’t need me to look at my portfolio every five minutes.
Should you invest £5,000 in Smiths Group Plc right now?
When investing expert Mark Rogers and his team have a stock tip, it can pay to listen. After all, the flagship Twelfth Magpie Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.
And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Smiths Group Plc made the list?
Stephen Wright does not own shares in any of the companies mentioned.
