2 FTSE 100 recovery stocks I’d buy in 2022

These FTSE 100 recovery stocks could see big improvements in their financials this year, but when is a good time to buy them?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

With the pandemic appearing to be almost coming to an end — assuming no new variant comes up — the FTSE 100 stocks that have been lagging behind so far may well begin to catch up. Two such caught my attention recently after they released updates. I liked them even before Covid-19, to be sure. But the last couple of years have made them questionable investments at a time when many others looked like sure-shot bets.

Smith & Nephew: Improving financials

The first of these is the healthcare stock Smith & Nephew (LSE: SN). The stock was put in a unique position despite being a classic defensive during the latest slowdown. Typically, as an investor I would expect its share price to appreciate during a slow down. But since the last economic slump was also associated with lockdowns and the health hazard associated with stepping out of the house, the company took a hit. That is because its big revenues come from supplying parts required for hip and knee replacement surgeries. And these are non-essential medical procedures in many cases. 

As a result, demand for its products fell, which showed up in its results too. It has, however, managed to bounce back up in the past year to pre-pandemic revenues now. Its profits have also risen from the year before, as per the latest numbers released this week. It also expects to continue to improve its earnings next year, all of which are encouraging signs for the stock. However, the one drawback for the stock is its valuation, as measured by the price-to-earnings (P/E) ratio, which is already a bit high. At almost 30 times, I believe that Smith & Nephew could do with a share price dip. I like the stock and I want to buy it in 2022, but I’ll wait for the right time.

InterContinental Hotels Group: FTSE 100 recovery stock

InterContinental Hotels Group (LSE: IHG) is another recovery stock I like. Hospitality has been one of the worst hit industries during the pandemic, and that shows in the state of this FTSE 100 stock. It has fluctuated a lot around a flat trend line over the past year. Still, I think the stock could be in for better times. As per its full-year results for 2021, it has swung back into profits again after showing a loss in 2020. It has also decided to reinstate its dividend. 

But the challenge with this stock is similar to that for Smith & Nephew. Probably in anticipation of better performance, its share price has already run up a lot and it now has a P/E of almost 50 times. Unless there is a really big improvement in its earnings in the next update, I think this is a bit too high. Still, I think that as a cyclical stock its financials are likely to improve and its share price is more likely to rise than not. In this case too, for that reason, I would buy it in 2022 but on any dip that makes it more attractive from a valuation perspective. In the meantime I will focus on cheaper stocks.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Manika Premsingh has no position in any of the shares mentioned. The Motley Fool UK has recommended InterContinental Hotels Group and 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.

More on Investing Articles

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »