The FTSE still offers great value, despite this year’s rally. In fact, if I were an American investor, I’d be looking almost exclusively at the index in an attempt to find value and develop my portfolio for the long run. UK stocks have some of the most attractive valuations around the world right now.
Today, I’m looking at two UK stocks that investors should buy in March. So let’s take a closer look at them.
Smith & Nephew
Smith & Nephew (LSE:SN) reported full-year revenue of $5.22bn on Tuesday. This was up 4.7% on an underlying year-on-year basis, with growth linked to positive performances across all franchises and geographies.
Trading profit for the year came in at $901m, down from $936m. The company reported a trading profit margin of 17.3%, down from 18% in 2021. The fall was attributed to inflationary pressure.
Reported growth was only 0.1%, due to the negative impact of foreign exchange headwinds
Looking forward, Smith & Nephew reported progress on its 12-point plan, which aims to drive growth in advanced wound management, sports medicine and orthopaedics.
This, in turn, contributes to a forecast 5-6% revenue growth for 2023, and a trading profit margin of at least 17.5%. With regards to longer-term objectives, Smith & Nephew said it was aiming for at least 5% underlying revenue growth and a trading profit margin expansion to at least 20% by 2025.
I’m aware of the ongoing and challenging impact of inflation, as well as the underfunded nature of healthcare.
However, I think are some massive tailwinds here. Firstly, there’s a huge backlog for elective procedures, and we have an ageing population challenge in most Western countries. This should translate into more business for the hip-replacement specialist.
The stock trades with a forward price-to-earnings (P/E) of 15 — a little above the index average but a very attractive ratio for healthcare.
Barclays
Barclays (LSE:BARC) disappointed investors last week, after the FTSE stalwart posted a pre-tax profit of £7bn for 2022, missing estimates of £7.2bn. In fact, after the announcement, the share price fell over 10%.
I thought this was something of an overreaction — although I appreciated that the £500m share buy-back left the City underwhelmed. So I bought more of the stock, with P/E at just 5.5.
There were several further positives within the report. Barclays is targeting a 2023 net interest margin of more than 3.2%, up from 2.86% at the end of 2022.
We can also assume that the interest rate tailwind will continue for several years. Inflation is proving stickier than anticipated, so interest rates could stay higher for longer. In the US, we can also see that economic activity has been less vulnerable to rising rates than originally thought — this could prove the case in the UK too.
Furthermore, Barclays uses a hedging strategy, providing a smoothing impact for rate hikes and extending the net interest gains over a longer period of time.
Finally, I appreciate there are challenges, especially around bad debt. Last year, the bank’s performance was dragged down by sizeable £1.22bn in impairment charges. However, I’m confident Barclays can continue to perform in this environment.
