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Smith & Nephew plc isn’t the only Footsie growth stock I’d buy on the dips

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Reassuring performance

Today’s full-year results from medical technology company Smith & Nephew (LSE: SN) received a cautious reception. Sales of the group’s replacement joints and wound care products lifted underlying revenue by 3% to $4.8bn, while operating profit surged 16% higher to $934m. This lifted the group’s operating margin from 17.2% to a very credible 19.6%.

Cash generation also improved, driving down net debt by $269m to $1,281m. Shareholders were rewarded with a 14% increase to the dividend, which rose to 35 cents per share. That’s equivalent to a yield of about 2% at current prices.

Catalyst for change?

During the years that I’ve been following this stock, it’s always looked a little expensive relative to its growth rate. That’s still the case today. Guidance for 2018 indicates that sales are expected to rise by 3%-4% on an underlying basis this year, while adjusted operating margin is expected to improve by a further 0.3%-0.7%.

US tax cuts should help to lift profits, but once again the company doesn’t expect to deliver the kind of market-beating growth that could indicate a major step forward.

However, given the ageing population of most developed countries, it’s clear this business operates in a structural growth market. The arrival of a new chief executive later this year could be the catalyst for change many analysts believe Smith & Nephew needs.

Recent falls have left the stock looking more affordable, on a 2018 forecast P/E of 18. I’m starting to get interested, and will consider buying if the shares continue to head lower.

This high flyer could go further

Budget airline easyJet (LSE: EZJ) needs no introduction. But the group’s growth and apparent quality probably does deserve a closer look.

In January, it reported an 8% increase in passenger numbers during the final quarter of 2017. Revenue for the period rose by 14%, which equates to an increase of 6.6% per seat. This was the result of strong growth in sales of extras, plus some currency benefits.

One thing that caught my eye was the group’s increased focus on long-haul flying. Although it only operates short-haul flights, its Worldwide by easyJet programme is being expanded to allow customers to book long-haul flights directly through the airline. This means that cover is provided for missed connections, and practicalities like bag transfer are simplified.

I don’t know whether this is the first element of a move into operating long-haul flights, but it’s worth noting that the long-haul market hasn’t yet had the full budget treatment. There could be an opportunity here.

Why I’d buy

In the meantime, growth in demand for short-haul travel appears to remain strong. I believe easyJet is one of the best ways to play this trend. Adjusted earnings per share are expected to rise by 16% this year and by 25% in 2018/19.

With the stock trading on a 2018 forecast P/E of 17 and offering a 2.8% yield, I’d certainly be keen to buy on any dips.

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Roland Head has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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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