FTSE 100 medical devices manufacturer Smith & Nephew (LSE:SN) saw an over 8% fall in share price yesterday on the announcement that its present CEO, Namal Nawana, has put in his papers only 18 months after being appointed, due to pay-related discontent.
While his exit is making investors understandably nervous, the fact remains that SN is a great growth share to buy. In the past five years, the share price has risen by 85% and it has seen a broadly rising share-price trend for even longer.
And there are good reasons for this. For one, a defensive share, in my view, is great to hold right now given the instability in the larger environment.
Safe harbour in uncertain times
The world economy continues to reel under uncertainty generated both from the US-China trade war and from Brexit negotiations. With this as the backdrop, economic growth and a resultant boom in global demand just can’t be relied on to drive companies’ fortunes. Instead, it’s essential to closely consider companies whose fortunes are immune to these conditions.
SN happens to be one of them. The manufacturer of hip and knee replacements, among other medical devices, provides a key product for an ageing population that’s seeing rising longevity. It’s no wonder then, that while a number of other FTSE 100 companies have raised red flags about economic uncertainty impacting their business, SN is actually at the opposite end of the spectrum.
It raised its revenue guidance range by 50 bps to 3%–4% for the year, after its second quarter results were positive, driven by increased demand in China and the US. Moreover, its long-term financial health is also steady, a key consideration for investors from the Warren Buffett school of thought.
International demand on the rise
I think its rising international demand is another good sign at the present. The way things are going, the UK runs the risk of spiralling into a full-blown recession if the Brexit process is poorly managed. This will make UK-focused companies vulnerable, adding to the attractiveness of internationally focused companies.
Further, a weak economy is likely to tell on the pound, which can remain weak in the next year. But a weak pound makes exporters internationally competitive, which is likely to further boost their performance. Considering that half of SN’s revenues are derived from the US and 16% come from emerging markets, its international focus shows that it’s poised to perform in 2020.
It has also been quick to resolve the vacuum in the leadership, with Roland Diggelmann taking over from Nawana from the start of next month. I’m guessing the share price will start rising quickly once he takes over. The time to buy is right away.
