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Why I’d buy these 2 top FTSE 100 shares for August and beyond

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I last wrote about medical technology company Smith & Nephew (LSE: SN) on 6 May when the share price stood near 1,621p. I was reporting the first-quarter trading figures from the top FTSE 100 share and described them as “dire.”

The coronavirus crisis induced a temporary collapse in demand for the firm’s replacement joints, fittings, nuts, bolts, rods, fracture repair and other products. Hospitals had postponed most of their usual procedures to cope with the demands of Covid-19.

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More poor trading figures

Since then, on 1 July, the company updated the market about trading in the second quarter. Once again, the figures were poor. The directors pointed to an underlying revenue decline of about 29%.  However, they were “encouraged” by improving performance as the quarter progressed. Revenue had declined by 47% in April, 27% in May, and 12% in June.

The firm pointed out that revenue performance correlated strongly” with the easing of lockdown restrictions and the resumption of elective surgeries. Indeed, it seems the pandemic is shaping up as a temporary setback for Smith & Nephew.

I think the stock market agrees with that assessment because today’s share price near 1,659p is close to its level in May. And it’s only around 17% below its position prior to the stock market crash. My assumption is the stock will recover along with the resumption of normal demand.

So we could be seeing a decent entry point now for a long-term investment in the company’s shares. The forward-looking earnings multiple for 2021 sits near 20. That’s a full-looking valuation. But the company is a quality operation and has been prized by investors for as long as I’ve been following the stock.

Building up recurring revenues

Since my previous article about integrated accounting, payroll, and payments solutions provider Sage (LSE: SGE), the top FTSE 100 share has been treading water. Indeed, over the past couple of months, the share price has been consolidating. However, it looks set to break higher now. And with good reason.

The firm has been enjoying success at migrating its customers to cloud-based subscription services and building up recurring revenues. But the coronavirus crisis has temporarily knocked earnings. City analysts have pencilled in a dip in earning per share of around 12% for the current trading year to September.

At 709p, the share price remains about 11% below its pre-spring-crash level. And I reckon the share will likely continue to make progress as the economy normalises. The company’s business has defensive qualities backed by a decent record of growing revenue, earnings, cash flow, and shareholder dividends. To me, the future looks bright for the business.

The forward-looking earnings multiple for the trading year to September 2021 sits around 26 and the anticipated dividend yield is close to 2.5%. That’s not cheap. But I see this as a quality enterprise that’s earned its valuation.

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Kevin Godbold has no position in any share mentioned. The Motley Fool UK has recommended Sage Group. 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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