I love the look of this FTSE 100 giant

I’m always on the hunt for investments that look like a bargain, and I haven’t been this interested in a FTSE 100 company in a while.

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Investing in enormous companies can be challenging, with so much analyst coverage and discussion making it difficult to find bargains. But every now and again, even in the FTSE 100, savvy investors can get excited about the potential of one of the country’s largest businesses. I think I’ve found one of these, and may just add it to my portfolio at the next opportunity.

What company?

Smith & Nephew (LSE:SN.) develops, manufactures, markets, and sells a wide range of medical devices and services in the UK and globally. Although not a household name, the company has been around since 1856, and may just have its best years ahead.

We all know how the demographics of the country is evolving, with an increasingly older and more frail population. This business may be uniquely positioned to benefit from this, with a tremendous share of the market for replacement knees and hips, alongside other products.

Clearly the world of biotechnology is a fast-moving one. But this business seems to have an impressive blend of experimental, innovative work alongside the more traditional treatments. Broken into three segments, Orthopaedics, Sports Medicine/ENT, and Advanced Wound Management, there is an enormous market for such products, and as technology develops, those with momentum look set to succeed in the future.

The numbers

Obviously, the balance sheet needs to make sense for this to be a valid investment. Investors tend to price in a lot of growth in the future, meaning that the share price can be very volatile if a business fails to meet expectations.

Fortunately, I feel like the market hasn’t yet fully realised the potential for this one. A discounted cash flow calculation suggests the share price may be as much as 39% undervalued. With such an innovative sector, the price-to-earnings (P/E) ratio isn’t particularly appealing at 40.5 times. However, this is pretty much in line with competition, so doesn’t put me off too much.

The industry in general is forecast to grow by a whopping 22% annually over the next few years. It’s rare to see a company worth well over £8bn growing so quickly, especially outside the technology sector.

Risks

Of course, nothing is guaranteed in the market. Forecasts can disappoint, and the market can be focussing on other areas. But with the company in great shape financially, I’d be tempted to play the long game here. Some areas do concern me, such as the dividend of 3% not being covered by the earnings of the business, and a fairly large amount of debt.

However, the track record of the business speaks for itself. I see it as a likely winner in the coming decades as it supplies an area we’ll always need, healthcare.

Am I buying?

I love what I see here. The business expects to see strong growth, is potentially undervalued, and provides products in an area expected to see enormous demand in the coming decades. I’ll be picking up shares of this FTSE 100 giant at the next opportunity.

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.

Gordon Best has no position in any of the shares mentioned. The Motley Fool UK has recommended Smith & Nephew Plc. 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.

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