The FTSE 100 index of leading UK shares has increased 18% over the past year, rewarding many investors handsomely. But some FTSE 100 constituents have slumped in the face of a rising market. Here are two FTSE 100 fallers I think offer value and would consider adding to my portfolio.
FTSE 100 fallers: Smith & Nephew
Medical devices manufacturer Smith & Nephew (LSE: SN) has seriously lagged its FTSE 100 peers over the last year, shedding 18% of its value in the period.
That’s not without reason. The company suffered significant revenue falls as delays in elective surgeries hurt demand for some of its products. Even now, the company’s orthopaedics business sector continues to perform sluggishly, although revenues in the first half did rise slightly above those of the pre-pandemic 2019 first half.
However, while recovery may be coming slowly, I think investors have marked Smith & Nephew down more than is merited. The company’s position among FTSE 100 fallers suggests dim prospects. Yet all three of the company’s business areas reported stronger revenue in the first half than in the equivalent 2019 period – in the case of advanced wound management, revenue grew in double digits.
Long-term appeal
Revenue growth isn’t the only reason Smith & Nephew features on my list of shares to buy now for my portfolio, though.
I like the medical devices space in general. Healthcare spending tends to be resilient, and healthcare providers are willing to pay for well-known brands. That helps a company like Smith & Nephew, with a reputation for quality. The company has maintained its guidance for this year and continues to target trading profit margins of 18%-19%.
However, the Smith & Nephew share price does face continued risks. Any further lockdowns in some markets delaying elective surgery could again hurt both revenues and profits.
FTSE 100 fallers: Reckitt
Another blue chip company among the FTSE fallers over the past year is Reckitt (LSE: RKT). The consumer goods group owns brands such as Dettol and Finish. But its own finish to the past 12 months has been weak, with the Reckitt share price tumbling even more than Smith & Nephew. Reckitt shares have fallen 25% in the period.
Like Smith & Nephew, that’s not without cause – two main causes, in fact.
First is cost inflation. The company has warned that galloping input cost rises threaten profit margins if it can’t pass them onto consumers. Secondly, the company’s problematic infant formula division continues to trouble the share price. It sold its Chinese infant formula division last month, retaining a small stake in the new business. But the challenges of the business unit and the debt its acquisition added to Reckitt’s balance sheet continue to weigh on the Reckitt share price.
Reckitt: shares to buy now?
Against that background, I would consider Reckitt among shares to buy now for my portfolio.
The company’s collection of premium brands means it has pricing power. That should help it fight the challenge of inflation. The sale of the Chinese formula business shows the company is tackling its problems directly. Meanwhile, the shares yield 3.2% and offer exposure to a global business which owns an attractive set of brands.
There are risks: debt continues to limit dividend increases, and any economic downturn could lead to a fall in revenue. But Reckitt and Smith & Nephew are two FTSE 100 fallers I’d consider adding to my portfolio today.
