Smith & Nephew News | The Twelfth Magpie

What’s going on with the Smith & Nephew share price?

Paul Summers — Thu, 29 Jul 2021 15:17:08 +0000

The Smith & Nephew (LSE:SN) share price was down heavily in early trading this morning. That’s despite the medical technology business revealing a huge jump in revenue over the last quarter. What gives?

Smith & Nephew’s share price tumbles

I’d feel a little hard done by if I held SN shares today.

Revenue rocketed a little under 43% to $1.34bn over the three months to 3 July. As one might expect, all of the company’s franchises — orthopaedics, advanced wound management, and sports medicine & ENT — “delivered strong growth” compared to last year as delayed elective surgery procedures finally went ahead.

Importantly, the last two of these logged underlying revenue growth compared to the same period in 2019 and before coronavirus reared its ugly head. The same goes for SN’s hugely important US market.

All this brought SN’s revenue over the first half of 2021 to $2.6bn — up 27.8% on the same period in 2020. From a loss of $5m last year, operating profit recovered to $239m.

According to CEO Roland Diggelmann, this rebound (and the contribution from new products and acquisitions) puts the company in “a strong position” as Covid-19 is finally knocked for six.

No change to guidance

I wonder if the negative reaction is partly down to the company electing not to alter its full-year guidance.

Today, Smith & Nephew said that it is still looking to grow underlying revenue by between 10% and 13% in 2021. A profit margin of 18%-19% is also being targeted, based on the assumption that Covid-19 will become even less of an issue going forward.

On top of this, some supporters may also be concerned about talk of profit margins being impacted by, among other things, higher logistics/freight costs and increased investment relative to before the pandemic.

In line with not changing guidance, management also revealed that the interim dividend would be maintained at 14.4 cents (10p). There are a couple of ways to look at this. One would be not to look a gift horse in the mouth. Dividend streams are never guaranteed and so receiving a stable payout is far better than not receiving one at all.

On the other hand, it’s not difficult for me to find other companies from the FTSE 100 offering far more income. One such candidate also reported to the market today.

A cautious buy?

Back in April, I was bullish on Smith & Nephew’s ability to recover from the pandemic and regarded the shares as a decent contrarian option for my portfolio. I don’t see anything today to alter my view on the company. Having said this, a near-8% fall in the share price is clearly not ideal.

Are there better growth opportunities in the market? I think so. Then again, SN’s line of work is relatively defensive. This could offer a way for me to balance out my racier stock picks. As always, it’s important to understand that I can’t control what the market does next. All I can do is buy shares that, collectively, could/should allow me to hit my financial goals at an appropriate level of risk. And that risk varies greatly between investors.

While today’s tumble in the Smith & Nephew share price will leave existing holders licking their wounds, I think it’s important to focus on where the stock will be in, say, five years, not five months. I think this is still a decent buy for my portfolio.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Smith & Nephew. 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.

2 FTSE 100 stocks I’d buy today and hold forever

G A Chester — Thu, 31 Oct 2019 13:30:23 +0000

It’s in the nature of some industries that their profits boom and bust with the economic cycle. However, there are others — so-called defensive industries — whose profits are far less dependent on the macroeconomic backdrop. I reckon investing in high-quality operators in these industries, when their shares are trading at reasonable prices, is a sound strategy for steadily building long-term wealth.

With this in mind, two FTSE 100 stocks I’d be happy to buy today, and hold forever, are Smith & Nephew (LSE: SN) and Coca-Cola HBC (LSE: CCH). Let me tell you about the particular attractions I see in these two businesses, and why I think their shares are currently reasonably priced.

Rising demand

Medical technology specialist Smith & Nephew operates in markets that are structurally and demographically attractive. Ageing populations, with more people being physically active for longer in retirement — wanting to enjoy travel, sports, and so on — means there’s rising demand for SN’s products.

The group has three business units: Orthopaedics (includes knee and hip implants); Sports Medicine (includes joint repair); and Advanced Wound Management. In a Q3 trading update today, it reported strong revenue growth of 6.5% (4% underlying), with all three franchises contributing. Geographically, emerging markets (19% of group revenue) delivered underlying growth of 16%.

Heading for above-market growth

SN’s Q3 revenue performance was built on first-half momentum, and led management to upgrade its full-year guidance for the second time this year. Ahead of today’s results, City analysts were forecasting full-year earnings per share (EPS) of 79p which, at a current share price of around 1,700p (a little down on the day), gives a price-to-earnings (P/E) ratio of 21.5.

The shares were not far off 2,000p as recently as last month, and I think the dip represents a good opportunity to buy in. The announcement of a change of chief executive is partly responsible for the recent weakness, but I don’t see this as a major concern.

The company is growing its underlying revenue in line with the attractive 4% average growth of its various end-markets. And I think improving operational performance and recent product acquisitions will translate into above-market growth in the coming years. In view of this, SN’s premium P/E rating is not at all unreasonable, in my opinion.

Brands are the business

Coca-Cola HBC — one of the largest bottling and distribution partners of The Coca-Cola Company — also trades at an above-market-average earnings multiple. And I think this is reasonable too. At a share price of around 2,340p, with City forecasts of EPS of 123p, the P/E is 19.

Operations in 28 countries, and excellent exposure to fast-growing developing markets (20% of revenue) and emerging markets (43%) are engines for growth. Management has guided on underlying revenue growth of 5-6% for the current year, with margin expansion pushing up profit at an even faster rate. Meanwhile, brand strength and repeat purchases of what are affordable drink treats, including Coca Cola, Sprite and Fanta, give CCH defensive qualities.

The Coca-Cola Company’s acquisition of Costa Coffee from Whitbread earlier this year provides CCH with yet another strong brand and growth engine. It’s preparing to launch Costa Coffee in 10 of its markets in 2020, expanding into all its markets over the following three years. I reckon CCH is another stock with outstanding buy-and-hold credentials.

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G A Chester has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

These FTSE 100 stocks have been on a tear. Can the good times continue?

Paul Summers — Tue, 25 Jun 2019 07:41:45 +0000

Momentum investing — buying stocks that have done well in the hope that this form will continue — is a popular strategy for the simple reason that it’s been shown to work.

According to a study that looked at returns between 1900 and 2016, UK stocks that had outpaced the market in the previous year returned an average of 14.1% over the next 12 months.

With this in mind, here’s a selection of stocks from the FTSE 100 that are currently doing very well indeed.

Rapidly rising

Accountancy software provider Sage (LSE: SGE) is a great example of just how profitable taking a contrarian stance can be. Its shares have climbed 50% in value since October, having previously fallen 35% from the beginning of 2018.

Some of this can probably be attributed to the general return in positive sentiment to markets but, as my Foolish colleague Kevin Godbold explained last month, Sage’s recent results have been decent, including a 9.9% increase in recurring revenue.

It’s certainly quite a turnaround for a company whose former CEO departed in 2018 amid disappointing trading and problems relating to the execution of a new business model.

Today Sage looks in much better shape and — at 26 times forecast earnings — boasts a high valuation to match.

Another stock that has performed admirably for holders lately has been medical technology business Smith & Nephew (LSE: SN). It’s up 36% since last October, comparing favourably to the 6% odd increase seen in the index over the same period.

May’s trading update has helped keep this momentum going with the £15bn cap reporting a 4.4% rise in underlying revenue over Q1. Management now believes that growth will now be “in the upper half of guidance range of 2.5% to 3.5%” for the full year.

This news, combined with a series of acquisitions to “strengthen leadership positions across the business,” should give investors confidence that the good times can continue. The shares are available on 22 times forward earnings.

It won’t come as a surprise that my last example is one the newest additions to the FTSE 100 — sportswear specialist JD Sports Fashion (LSE: JD).

Bucking the trend seen elsewhere on the high street, JD’s revenue jumped almost 50% in the 52 weeks to 2 February with pre-tax profit also rising 15.5% to just under £340m.

Naturally, this form hasn’t been ignored with the shares galloping 70% higher since the beginning of 2019. They now change hands for 18 times expected earnings, compared to the five-year average of 15.

The company’s growth strategy, part of which has involved a spate of acquisitions, including menswear brand Pretty Green and footwear retailer Footasylum (although the latter still needs to be approved by the Competition and Markets Authority) has clearly gone down well with investors.

Last year’s capture of US firm Finish Line also serves to increase JD’s geographical diversification — a prudent move with Brexit somewhere on the horizon.

Don’t get too comfortable

Based on recent trading, I think there’s a good chance that all three of these stocks will keep rising, at least in the near term.

There can be no guarantees though. Popular companies can fall hard when their purple patches end and/or external events dictate otherwise. Don’t expect a gong to signal the optimal time to sell.

If all that doesn’t sit well, then the Fool’s general philosophy of buying quality companies and holding on through thick and thin for many years may have more appeal.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Sage 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.

Forget buy-to-let: I think these 2 FTSE 100 shares can help you become an ISA millionaire

Peter Stephens — Tue, 11 Jun 2019 12:11:02 +0000

While investing in buy-to-let properties has historically been a popular means of generating wealth, the FTSE 100 could offer superior risk/return appeal.

Not only does it offer more liquidity and greater tax efficiency when shares are purchased through an ISA, a number of its members appear to be undervalued based on their growth prospects.

Therefore, an investor who’s looking to generate a seven-figure ISA in the long run could have a number of appealing opportunities available at the present time. With that in mind, here are two FTSE 100 shares that appear to have long-term growth potential can could boost your ISA returns.

Smith & Nephew

Medical technology company Smith & Nephew (LSE: SN) announced on Tuesday it has agreed to acquire Atracsys Sarl. It’s a Switzerland-based provider of optical tracking technology used in computer-assisted surgery. The company’s optical tracking camera will be a core enabling technology for Smith & Nephew’s multi-asset digital surgery and robotic ecosystem. It claims to offer superior measurement speed that supports reduced procedure times, as well as increased accuracy.

Looking ahead, Smith & Nephew is forecast to post a rise in earnings of 8% in the current year. This could boost investor sentiment, while its track record of resilient financial performance may increase demand for its shares at a time when the outlook for the wider stock market is relatively uncertain.

Although the stock has a relatively high price-to-earnings (P/E) ratio of 21.9, it operates in an industry where growth forecasts are robust. Therefore, while not the cheapest stock in the FTSE 100, it may warrant a premium valuation over the long run.

Whitbread

The sale of its Costa Coffee division now means Whitbread (LSE: WTB) can now focus on building its Premier Inn chain of hotels across the UK and in international markets.

It appears to have significant scope to do so, with demand for budget hotels buoyant in a number of key markets. This could provide the business with a significant growth opportunity, potentially offering a more robust performance than the wider hotel industry as customers trade down to cheaper options during challenging economic periods.

Whitbread’s valuation suggests investors are relatively optimistic about its prospects. The stock trades on a P/E ratio of 16.7. However, its growth outlook from the investment it’s making in the business, as well as in cost-cutting measures that are designed to make it more efficient, could produce a rising bottom line over the long run.

With the company continuing to innovate through formats such as ‘hub’, which offers smaller rooms in prime locations, the business appears to have several key growth drivers. This could allow it to generate further growth and justify a higher share price that could boost investors’ ISA returns and increase their chances of making a million.

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Peter Stephens owns shares of Whitbread. The Motley Fool UK has no position in any of the shares mentioned. 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.

Investing your first £2k? Here are 2 FTSE 100 stocks I’d buy today

G A Chester — Thu, 02 May 2019 15:05:06 +0000

Here at the Motley Fool we bang the drum for long-term investing in the stock market. If you’re serious about building enough wealth to achieve financial independence, owning shares really is the way to go, in our view.

If you’re looking to invest your first £2,000, you’ll probably be considering which companies could lay strong foundations for a successful portfolio. Here, I’ll tell you how I’d approach the question, and about two starter stocks I’d be happy to buy today.

Narrowing the field

I’d begin by looking to the FTSE 100 for well-established businesses that have stood the test of time.

I’d also narrow down my focus to more ‘defensive’ industries. That’s to say, industries that are more resilient through the ups and downs of economic cycles. I’d want to build my experience a bit before considering highly cyclical businesses like banks and housebuilders.

And within defensive industries, I’d look to those with long-term ‘structural’ growth drivers. That’s to say, those where the broad backdrop for the future is positive. Again, I’d want to build my experience a bit before considering stocks in industries that may be in long-term structural decline, such as tobacco.

The healthcare and defence industries fit my bill. Ageing populations in the developed world, and rising wealth in developing economies, provide long-term structural drivers for growth in healthcare. Meanwhile, the world’s long history of geopolitical conflict is never likely to end, which means continuing demand for the products and services of the defence industry.

If I were starting out today, I’d split my first £2,000 investment between healthcare company Smith & Nephew (LSE: SN) and defence firm BAE Systems (LSE: BA).

Worth every penny

Smith & Nephew is a global business, with leadership positions in Orthopaedics (45% of revenue), Sports Medicine (31%) and Advanced Wound Management (24%). Recent acquisitions have further strengthened its leadership positions, and can be expected to accelerate growth over time.

As it is, it’s growing nicely in developed markets (a 2.2% increase in Q1 revenue reported today) and particularly strongly in emerging markets (a 15.3% increase). Management now expects revenue growth for 2019 to be in the upper half of its guidance range — which is good — but it’s the long-term prospects for the business that convince me it’s a great core holding for a starter portfolio.

The share price is 1,520p, and for a company with leadership positions in its fields, and structural drivers for industry growth, I think the premium rating of near to 20 times forecast 2019 earnings, with a 2% dividend yield, is worth every penny.

Currently cheap

BAE Systems will be well known to most people. Its big contract wins with the Ministry of Defence and major allies in the western world regularly make the national news. As well as producing heavyweight kit for the defence of air, sea and land, the group’s other activities include cyber security and intelligence.

There’s some uncertainty at the moment about the future of BAE’s trading relationship with Saudi Arabia (18% of its revenues), due to political tensions over the war in Yemen and the killing of dissident journalist Jamal Khashoggi. However, again, it’s the long-term prospects of this world-class business that are the big appeal to me.

The current uncertainty may be part of the reason why you can buy the shares today at 487p — less than 11 times forecast 2019 earnings, with a 4.8% dividend yield.

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Have £3k to invest? Here are 2 FTSE 100 dividend stocks I’d buy today

Roland Head — Sun, 17 Feb 2019 08:15:48 +0000

Are you already invested in the stock market but worried about diversification? It’s not always easy to know whether your portfolio is too concentrated, or how well it will perform in stormy stock market conditions.

Today, I want to suggest two stocks that I think should deliver valuable diversification, while providing a reliable, growing income.

Why diversify?

The reality is that most of us can’t afford to sustain big losses when we’re caught out by unexpected events, or make a mistake. At times like this, a diversified portfolio will help to limit our losses and protect the majority of our wealth.

The maths are simple. If you own four stocks with equal position sizes and experience a 40% loss on one stock, the value of your portfolio will fall by 10%.

If you own 15 stocks in equal sizes, a 40% loss will only result in a 2.7% hit to your portfolio.

Pick #1 – growth

My first stock choice is medical technology group Smith & Nephew (LSE: SN). This company’s main business is making joint replacements for knees, hips and shoulders. It also creates products to help with wound management and other injuries.

Smith & Nephew sells its products in more than 100 countries. Although the US accounts for nearly half of all sales, emerging market sales rose by 7% last year and now account for 17% of revenue.

As emerging markets develop, the number of people able to pay for modern healthcare increases. A good example of this is China, where the group reported “double-digit” percentage sales growth in 2018.

This business has several other attractions too, in my view. It’s highly profitable, with an operating profit of nearly 18%. Debt is fairly low and cash generation is good, comfortably supporting the dividend.

The company gained a new chief executive last year who’s working hard to accelerate the group’s growth. Acquisitions are a possibility, as is a takeover bid.

The shares aren’t cheap, and the dividend yield of 2.1% is fairly modest. But I believe this business has a long runway of growth ahead. I’d rate the shares as a long-term buy.

Pick #2 – income

I like to mix dividend growth with high yield stocks in my portfolio. Combined, my hope is that these will provide an attractive, rising income.

One high-yield pick on my radar at the moment is FTSE 100 real estate investment trust (REIT), Landsec (LSE: LAND). Shares in this firm have fallen by 15% over the last two years and are down 33% from their 2015 highs.

Investors are rightly concerned that rental rates will fall as struggling retailers force landlords to choose between lower rents or store closures.

However, Landsec’s retail property is fairly high quality and is diversified by a valuable portfolio of prime London property. Debt is low and the group’s shares trade at a 35% discount to their book value of 1,384p per share.

A lot of bad news is already priced into this stock. With a forecast dividend yield of 5.3%, I think Landsec makes sense as a long-term income holding.

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Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended Landsec. 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.

Could FTSE 100 housebuilder Barratt make or break your wealth in 2019?

G A Chester — Thu, 07 Feb 2019 15:48:27 +0000

Investors in housebuilders have had a roller-coaster ride over the last year or so. The share price of Britain’s largest volume builder, Barratt Developments (LSE: BDEV), started 2018 at 648p, but slumped 33% to a low of 434p by 17 December. However, it’s since rallied hard, climbing to 562p, helped by a warm reception for its half-year results yesterday.

Meanwhile, investors in medical devices group Smith & Nephew (LSE: SN), which put out its annual results this morning (also well-received by the market), have had a less tumultuous time. However, it’s the future I’m really interested in, and where these two FTSE 100 stocks could go from here. Do I think they could make or break your wealth in 2019?

Earnings outlook

There’s considerable uncertainty about the earnings outlook for Barratt. The table below shows City analysts’ earnings per share (EPS) forecasts for its current and next financial years, according to Reuters.

	No. of analysts	EPS (mean)	EPS (high)	EPS (low)
Year ending June 2019	15	67.3p	74.9p	47.2p
Year ending June 2020	15	68.6p	81.8p	33.1p

As you can see, there’s extreme divergence in the range of projections. For fiscal 2020, the high estimate of 81.8p is 19% above the mean, while the low of 33.1p is 52% below. At the current share price, the price-to-earnings (P/E) ratio ranges from 6.9 (cheap) to 17 (expensive).

Meanwhile, Barratt’s intended dividend returns (ordinary and special) of 44.2p (7.9% yield) for 2019 and 44.7p (8%) for 2020, are partly calculated with reference to the Reuters EPS mean.

Brexit

Bank of England governor Mark Carney warned last September that house prices could crash as much as 35% over three years in the event of a no-deal Brexit. If such a divorce were to trigger a crash, even the lowest EPS forecasts for Barratt, as well as the prospective dividend yields, would go out of the window. The shares would get hammered.

However, in the event of an orderly Brexit, I think the market would likely see the mean or upper-end EPS forecasts as reliable and the dividend as sustainable. The shares could continue to rally, although, as I’ve argued in a recent article, I think there’s a risk of a housing correction or crash — regardless of the Brexit outcome. This wold be due to unprecedented levels of consumer debt, and the world moving towards a phase of quantitative tightening and rising interest rates. Personally, I’m happy to avoid Barratt at this stage.

Stability and visibility

Unlike the notorious boom-and-bust housebuilding industry, healthcare tends to be a more stable sector through the ups and downs of economic cycles. Smith & Nephew today reported underlying revenue growth of 2% for its financial year ended 31 December. Underlying EPS rose 7% and the board increased the dividend by 3%.

Turning again to Reuters and City analysts’ forecasts, we find a marked difference to Barratt in terms of the range of EPS projections:

	No. of analysts	EPS (mean)	EPS (high)	EPS (low)
Year ending December 2019	14	$1.00	$1.10	$0.94

As you can see, the range is far narrower for Smith & Nephew, the extremes being just 10% above and 6% below the mean. This reflects the superior stability and earnings visibility of this international medical devices business.

At a share price of 1,500p, the P/E is between 17.6 and 20.6, while there’s a prospective dividend yield of 2%. I believe the company merits this premium valuation, and I rate the stock a ‘buy’.

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Why I might buy Smith & Nephew shares after a 6% price surge

Alan Oscroft — Fri, 02 Nov 2018 12:31:27 +0000

“Buy what you know,” goes the old investing mantra. And I think I know Smith & Nephew (LSE: SN), which makes surgical implants, reasonably well. I’ve worked in that business in the past, and I know how widely used and well regarded are its products — they really are among the best.

I’m currently eyeing up possibilities for my next SIPP investment, and the 6% share price spike at Smith & Nephew on Thursday drew my attention. It’s a response to the latest trading update, which reported a 3% rise in third-quarter underlying revenue.

Chief executive Namal Nawana cited US and Emerging Markets growth as driving the overall improvement, with underlying US revenue up 4% and Emerging Markets revenue surging by 10%.

That sounds like really good news, as uncertain US markets have been contributing to the company’s share price volatility all year.

New markets

The firm also reported “strong growth in Reconstruction, Sports Medicine Joint Repair and Advanced Wound Devices,” which are potentially lucrative markets.

Smith & Nephew does appear to be doing well at refocusing the way it does business, with Nawana adding: “These results were achieved while successfully redesigning how we will run the company. There is still more to do, and I am pleased with the pace of progress and engagement across the organisation.”

Smith & Nephew’s dividend yields aren’t great, with forecasts a little above the 2% mark. But they should be well covered by earnings and are progressive — and a sustainable and rising divided can be better than a big yield today.

I want to see how well the new strategy progresses, but Smith & Nephew is definitely on my shortlist.

Growth share dip

I’ve also had my eye on NMC Health (LSE: NMC) for some time, though the share price chart has started to look scarily like some of the growth bubbles we’ve seen in the past few years. And I’ve been fearing it might go pop.

But from a peak of 4,376p in August, the price has shed 20% to drop to 3,508p as I write, so are we looking at an unexpected buying opportunity?

First-half figures in August were impressive, but actually proved to be pivotal for the share price, which went into a two-month slide. Were investors hoping for even better results? It’s hard to tell, but it’s quite common for growth investors to be expecting spectacular results when all they actually get is seriously good ones — and they’ll often run for the hills when that happens.

Upgraded guidance

But NMC revised its guidance upwards a week ago, and that could well have given fresh life to the share price and we’re seeing it moving upwards again. After a strong first half, the firm now expects a 24% rise in revenue for the full year, and has lifted EBITDA guidance from $465m to $480m.

The shares are currently priced at 25 times forecast 2019 earnings per share, which definitely requires solid growth to justify. But predictions suggest 30% EPS rises this year and next, and we’re looking at an attractive PEG ratio of only 0.8.

I still see NMC as a strong growth candidate, with a likelihood of turning into a big-dividend cash cow in the future.

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Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has recommended NMC Health. 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.

Why I’d buy this flying FTSE 100 stock today and hold it for decades

G A Chester — Thu, 01 Nov 2018 14:57:25 +0000

The Smith & Nephew (LSE: SN) share price jumped as much as 8% higher in early trading today after the medical technology giant issued a positive Q3 trading update. The company said that while it now expects underlying revenue growth for the full year to be in the lower half of its 2% to 3% range, it anticipates a trading profit margin above that achieved in 2017, as a result of a favourable legal settlement and improved cost control.

I’ll come back shortly to why I’d be happy to buy this FTSE 100 stock today and hold it for the long term, but first I want to tell you about a smaller company in the healthcare sector. This firm’s share price is well over 50% below its high of last year but I believe it could be on the verge of a major recovery.

Regaining momentum

Vectura(LSE: VEC) is an industry-leading designer of medical devices that enhance the delivery and performance of inhaled products to help patients suffering from airways diseases. It also develops high-quality generic alternatives to branded therapies.

The company experienced a challenging 2017 and the decline in its share price saw it demoted from the mid-cap FTSE 250 index to the SmallCap index. However, having refocused its portfolio prioritisation and implemented initiatives to transform R&D productivity, the business has been regaining momentum recently.

Looking to next year’s earnings — a consensus forecast increase of over 40% to 4.8p a share, according to Reuters — I reckon there’s considerable upside potential for investors today at a share price of 72p (market cap £479m). I’d be happy to buy this stock for its recovery prospects.

Unlocking growth potential

Smith & Nephew, which last month was named by my colleague Kevin Godbold as his top stock to buy, is a bigger, more stable business than Vectura, with a market cap of £11.8bn at a current share price of 1,350p. For this reason, and because ageing populations and more active retirees provide long-term rising demand for many of its products, it is a stock I believe can thrive for decades to come.

Current chief executive Namal Nawana arrived in the summer with a track record of energising businesses to deliver better performance and greater value to shareholders. He’s confident he can do this at Smith & Nephew, with what he describes as the group’s “excellent product portfolio with numerous best-in-class medical technologies.”

We should get full details of his strategic plans early next year, but today’s update told us of one major change already being implemented, which is aimed at unlocking the firm’s growth potential. This is a new global commercial model, including a president responsible for each of the company’s three specialised global marketing franchises: Orthopaedics, Sports Medicine/ENT and Wound.

Discount to peers

The current share price represents 18.5 times this year’s forecast earnings of $0.94 a share (72.9p at current exchange rates) and 17.4 times next year’s pencilled in $1.00 (77.5p). The earnings rating and a modest 2% running yield on a $0.35 (27.1p) dividend put Smith & Nephew on a premium rating versus the FTSE 100 average.

However, I see the shares as a ‘buy’ because the company looks great value against its own sector peers. Indeed, in a research note this morning, analysts at Exane said the stock is trading at a 10-year high discount of 20% against US peer Stryker.

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Down but not out! 2 unloved FTSE 100 stocks I reckon could help you to retire early

Royston Wild — Wed, 31 Oct 2018 14:13:55 +0000

If you’re one of those people that like to squeeze every drop of value out of your purchases, then I think now is a perfect opportunity to grab your chequebook and go out stock shopping.

There’s a plethora of undervalued stocks in the FTSE 100 alone as of today, a theme which I have studied in no little detail since October’s sell-off kicked in. A couple of sinkers that I haven’t discussed recently are Smith & Nephew (LSE: SN) and RELX (LSE: REL), however, and I’d like to take the opportunity to explain why I feel dip buyers need to pay them close attention right now.

Medical marvel

Artificial limb and joint manufacturer Smith & Nephew has been host to some significant share price volatility over the past year because of challenging trading conditions in the US. The Footsie firm has steadied in recent sessions following the more recent sell-off but it still remains around 8% lower than levels seen at the start of October.

This leaves the medical mammoth changing hands on a forward P/E ratio of 18.1 times, a big discount to its historical earnings multiples. And this represents a great opportunity for investors to grab a slice of the action, even though I’m not expecting a blowout set of numbers when third-quarter figures are released tomorrow (Thursday, November 1).

You see, while the revenues slowdown in its established territories is causing City analysts to predict a 3% earnings slide in 2018, like the number crunchers, I believe it has the tools to bounce back from next year and deliver solid profits growth.

Europe’s largest medical device maker may be struggling in developed markets right now, but the rate at which sales are growing in emerging markets (by double-digit-percentages in China during the first half of 2018, for example) signals a bright future for Smith & Nephew and its top line.

Make no mistake: global healthcare investment is still on course to boom thanks to the pounding wealth growth being printed in developing regions. And through its best-in-class products like the POLAR3 hip replacement product, I think Smith & Nephew is in great shape to ride this trend.

Another underbought beauty

RELX is another share that took a smack in October, although the 5% drop it has endured this month makes it one of the FTSE 100’s lesser-hit companies.

I can’t help but think that the market is still failing to give the information and analytics specialist the credit that it deserves, however, and particularly following its bright financial update of last week. It advised that underlying revenues had risen 4% in the first nine months of 2018.

RELX’s key markets remain strong and the business is engaged on an ambitious M&A drive to keep profits on an upward slant, clocking up another seven acquisitions at a total cost of £943m in the year to September.

City brokers are predicting earnings growth of 4% in 2018 alone, and this results in a forward P/E ratio of 18.4 times. Not exactly cheap on paper, but in my opinion, this reading makes RELX a snip when you consider its robust position in numerous sectors like science and law, not to mention its wide and ever-growing geographical base.

The post Down but not out! 2 unloved FTSE 100 stocks I reckon could help you to retire early appeared first on The Twelfth Magpie.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended RELX. 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.