I don’t have any cash to invest right now. But when it comes to FTSE 100 shares, I’m keen on Smith & Nephew (LSE: SN), the medical technology company. It provides products and services in the areas of orthopaedics, advanced wound management, sports medicine, and ear, nose & throat (ENT).
Targeting better execution
In November 2022, the company released a third-quarter trading report showing steady progress. And that came after the directors announced a 12-point plan in July “to drive better execution at pace”.
I’m optimistic the new focus can drive better financial outcomes over the next few years. And City analysts have pencilled in higher earnings ahead, close to pre-pandemic levels. Although there’s no certainty the company will make its estimates.
Nevertheless, with the share price in the ballpark of 1,200p, the valuation looks fair to me. The forward-looking price-to-earnings ratio is just below 17. And the share price is around 37% below its 2019 peak.
I see Smith & Nephew as a high-quality enterprise with some defensive attractions. Nevertheless, the pandemic caused the business some problems. However, the firm has carried a high-looking valuation for as long as I can remember. So today’s level looks reasonable by comparison.
Over the past year, the stock has more or less returned to where it started after dipping lower. And I’m hopeful that operational momentum can keep the share price moving higher in the coming months.
We’ll find out more from the company with the full-year results report due on 21 February. But in the meantime, I also like the look of Croda International (LSE: CRDA).
Refocusing the business
It’s a global speciality chemical company creating ingredients and technologies for products used by industry and consumers worldwide. And the ingredients often make up only a small percentage of the finished product. But “it is that unique percentage that makes the difference by delivering unique performance benefits”, it says.
The business is another quality operator with a high valuation to match. But what I like about the stock now is the directors’ new determination to refocus the business. Over the past 18 months or so, Croda has “accelerated” key elements of its strategy to transition to a dedicated consumer care and life sciences company.
And I reckon a narrower focus and concentrated effort is almost always a positive thing in business. My hope is the firm’s new, clearer direction will lead to improving profits in the years ahead.
Strong profits and cash flow
Meanwhile, the share price is around 30% below its December 2021 peak because of the general weakness in the markets. But Croda’s profits and cash flow have held up well during the period.
I see the current share price in the region of 7,100p as an opportunity for me. Although there’s no guarantee earnings will improve in the future. And I could even lose money on the shares if the company’s plans don’t work out as expected.
Nevertheless, I’d be tempted to buy some of the shares now to hold for the long term. However, there is valuation risk here. The forward-looking earnings multiple for 2023 is running at just below 29. And that’s despite the recent falls on the share price chart.
We’ll find out more about operational progress with the full-year results report due on 28 February.
