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2 FTSE 100 stocks I’d buy in June

I’ve long been keen on speciality chemicals giant Johnson Matthey (LSE: JMAT). It released its annual results today, which were a bit ahead of market expectations, confirming my bullish view on this FTSE 100 group’s prospects.

Strong growth outlook

Underlying sales of £3.85bn were 7% ahead of last year at constant exchange rates. At the bottom line, underlying earnings per share (EPS) came in at 208.4p, a tad lower than last year’s 209.1p but above a Reuters consensus forecast of 207.99p. The board said it was increasing the dividend by 7% to 80p (versus a forecast 78.7p), “reflecting our confidence in the prospects of Johnson Matthey.” These prospects were reiterated in medium-term EPS guidance of a mid-to-high single-digit compound annual growth rate and an expansion in return on invested capital to 20% (from a current 16.4%).

The group’s largest division, Clean Air (operating profit £349m, 61% of group), has a strong growth driver from tightening environmental legislation across the world. Efficient Natural Resources (£158m, 28%) has market-leading technology focused on higher-growth segments. Health (£44m, 8%) is set to deliver breakout growth with the commercialisation of a pipeline of new generic products, expected to deliver operating profit of £100m by 2025. Finally, in New Markets (£17m, 3%), there’s huge scope, as the company commercialises a next-generation battery material that enables the rapid development of pure battery electric vehicles.

At a share price of 3,425p, Johnson Matthey’s trailing price-to-earnings (P/E) ratio is 16.4 and the running dividend yield is 2.3%. The shares are now 7% higher than when I wrote about the company at the half-year stage. However, given the solid outlook for earnings and dividend rises and potential for explosive longer-term growth, I view the valuation as still attractive and continue to rate the stock a ‘buy’.

Favoured by demographics

Another FTSE 100 company that enjoys strong external drivers for long-term growth — in this case demographics — is medical technology giant Smith & Nephew (LSE: SN). The group is well balanced across three divisions: Sports Medicine, Trauma & Other ($1.9bn revenue last year, 40% of group), Reconstruction — knee and hip implants ($1.6bn, 33%), and Advanced Wound Management ($1.3bn, 27%).

EPS last year came in at $0.945, 14% ahead of the previous year, and the company increased its dividend by the same percentage to $0.35. At a share price of 1,375p and current exchange rates, the trailing P/E is 19.4 and the running dividend yield is 1.9%.

Long-term growth still in prospect

Earlier this month, it reported a weaker than expected Q1 and lowered its guidance on full-year revenue growth to between 2% and 3% from its previous 3% to 4%. I wouldn’t go as far as my Foolish colleague Royston Wild in labelling this as chilling news, but the performance in 2018 is certainly set to be muted.

Nevertheless, I view the shares as still very buyable, due to those long-term drivers for growth I mentioned earlier. Finally, I don’t see a recent change of chief executive after seven years as a cause for concern. Indeed, the incoming CEO is an industry veteran, who, in the words of Smith & Nephew’s chairman, “has demonstrated that he can energise businesses to deliver better performance and greater value to shareholders.”

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G A Chester 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.