Could FTSE 100 incumbent Johnson Matthey (LSE:JMAT) be one of the best shares to buy for my portfolio? Let’s take a look.
Diversified business
Traditionally, Johnson Matthey has been known for its focus on chemicals (specifically platinum) and scientific industry and technology. It has a diversified business model and a range of interests in renewable energy through its products and services.
As well as chemicals and pharmaceutical materials, Johnson plays a part in manufacturing catalytic converters for cars. These help a car’s engine emit less carbon into the atmosphere. It is also working on manufacturing components for electric vehicles. Finally, it has a vested interest in researching platinum-based cancer drugs and fuel cells too.
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As I write, shares in Johnson Matthey are trading for 2,636p. At this time last year, shares were trading for 2,349p, which is a 12% return over 12 months. At current levels, if Johnson Matthey’s transition to becoming a fully fledged FTSE 100 renewable energy stock were to be successful, I would consider the shares cheap.
Performance and outlook
I often look at past performance to gauge a stock’s record, although I understand that past performance is not a guarantee of the future. Revenue has increased year on year for the past four years, which is positive.
Looking at some more recent updates, Johnson’s last full-year results were announced in June. I saw these as generally positive with some impact from Covid-19. Revenue increased by 8% to £15.7bn but sales fell by 5%. Overall underlying profit fell by 5% to £504m. These figures are compared to the last full year of trading. A dividend of 70p per share was declared, which is a positive for me.
Johnson’s Q1 update released at the end of July noted that sales had returned to pre-pandemic levels and operating profit was ahead of pre-pandemic levels. This has been driven in part by volatile and higher-than-average precious metal prices.
The future outlook could be positive in my opinion. I mentioned earlier about Johnson’s foray into the electric vehicle component market. It is building a bespoke factory in Poland to facilitate this. Furthermore, it is working on green and blue (fossil fuel based) hydrogen. Green hydrogen is an area of high interest to governments worldwide.
FTSE 100 picks have risks
Johnson Matthey has some good fundamentals and lots going for it currently. My focus is where it could enhance its appeal through future projects. I must consider the risks involved, however.
Firstly, volatility in the world economy caused by the pandemic has had a knock on effect on commodities prices. This has benefitted Johnson recently but could equally hinder it in the future if prices were to dip or soar too high. Financials and performance could be affected. Furthermore, the race towards green energy is a saturated one. Competition to get ahead in this market is intense. If Johnson were to fall behind competitors it could lose market share and investor sentiment could tail off.
Overall I do like Johnson Matthey shares for my portfolio. I would consider adding shares and holding them for the long term. I will keep a keen eye on future developments to see if current projects and ambitious future goals come to fruition. If they do, I would expect to see a nice return.
