Stock markets may be flying higher, but there are still FTSE shares that look undervalued to me. Here are two from the blue-chip index that might be worth considering.
Smith & Nephew
First up is Smith & Nephew (LSE:SN.). This is a global medical technology company specialising in artificial hips and knees, surgical instruments, and wound care products that promote healing.
The FTSE 100 stock’s had a rough time, falling around 38% over the past five years.
The pandemic’s largely to blame, as many surgeries, including joint replacements, were postponed or canceled. Plus, rising raw material costs due to inflation have squeezed profit margins. So another pandemic or a return of high inflation are key risks here.
However, the medical equipment maker looks to be getting back on track. In the first half, revenue rose 4.3% year on year to $2.83bn, while profit jumped 12.8% to $471m (analysts were expecting $462m).
That 16.7% trading profit margin was up from 15.3% last year, and management’s targeting 20%+ in 2025. So there’s significant margin expansion here.
Longer term, Smith & Nephew looks well-placed to benefit from a rapidly ageing global population. As more people grow older, demand for hip and knee replacements should drive steady revenue growth.
Finally, the stock looks cheap at 13.4 times forecast earnings for 2025. And there’s a 2.6% dividend yield too.
JD Sports
Next up is JD Sports Fashion (LSE: JD), whose shares have fallen 21% since just before Christmas.
This is due to the tough economic backdrop, where cash-strapped consumers have been buying less of the branded sportswear JD normally sells by the boatload.
The main risk here is a further deterioration in consumer spending. Ongoing struggles at Nike, which accounts for around 45% of JD’s sales, also aren’t helping.
However, I reckon there’s still a lot to like about the firm in the long run. First off, it has over 4,000 stores worldwide and a strong online presence. It has close partnerships with Nike and Adidas, which often enable it to feature exclusive product lines that aren’t available at smaller rival retailers.
The company’s multi-brand strategy also allows it to capture growth from newer labels like Hoka and On (the latter brand’s hot right now, at least if my local gym’s anything to go by).
In the group’s first half, covering the 26 weeks to 3 August, we saw the benefits of JD’s diverse offer. Group revenue was up 5.2% year on year to £5bn (6.8% in constant currency). And adjusted pre-tax profit came in at £406m, handily beating analysts’ expectations for £384m.
CEO Régis Schultz commented: “Our multi-brand model and the agility that we have around moving across different brands is the recipe of our success.”
The company’s well-positioned to continue growing share in the US, the world’s largest sportswear market. It recently acquired Hibbett Sports, adding another 1,000+ stores to its portfolio.
At 136p, the stock’s trading at just 10 times earnings. That’s incredibly cheap for a firm with a strong brand and solid long-term growth prospects.
Looking ahead, falling interest rates should boost both consumer spending and investor sentiment for the stock. I reckon it’s a bargain hiding in plain sight and I plan to invest.
