The inventories of medical technology companies that manufacture and market health products have had a mixed year. In the wake of the outbreak of the coronavirus pandemic, elective surgeries have been postponed or even canceled in many countries.
As the introduction of vaccines in 2021 brings more normality to our lives and healthcare, two global companies headquartered in the UK could arouse investor interest: Smith & Nephew (LON :), (NYSE 🙂 and ConvaTec (LON :), (OTC :).
We believe the long-term growth opportunities for each remain optimistic in a post-COVID world. According to United Nations statistics:
"Virtually every country in the world is experiencing a growth in the number and proportion of older people in their population … [B] y 2050 one in six people in the world will be over 65 years old (16%), up of one in 11 in 2019 (9%). "
Similarly, the UK Office for National Statistics suggests:
"In 50 years there will probably still be 8.6 million people aged 65 and over – a population roughly the size of London."
1. Smith & Nephew
Headquartered in Watford. Smith & Nephew is listed on the. Its activities extend to more than 100 countries, where it employs nearly 18,000 people. In 2019, annual sales were $ 5.1 billion (or £ 3.8 billion).
The company focuses on three segments:
Orthopedics;
Sports medicine and ear, nose and throat (ENT);
Advanced wound care.
The SN stock is currently trading 15% lower than at the beginning of the year. It closed on December 22 at 1556.5 p. ($ 41.85 for US-domiciled stocks). The current share price supports a dividend yield of about 2.1%.
Smith & Nephew Weekly Chart.
At the end of October the group released statistics. Sales were $ 1.2 billion (£ 900 million), down 3.7% year-on-year. Management noted that this number was a significant recovery from the underlying decline in the second quarter of 29.3%.
The US market, which grew again, was up 0.9% year-on-year. However, in addition to China, which also grew, emerging markets declined.
CEO Roland Diggelmann said:
“I am pleased with our progress in the third quarter … [A] recovered global levels of elective surgery [we] delivered a substantial improvement in performance over the previous quarter, led by growth in both the US as well as China, our two largest markets. "
The forward price / earnings ratio and price / earnings ratio of the SN stock are 20.49 and 3.91 respectively. While we like the stock given the likelihood of a possible third wave of the global pandemic, we would hold off investing, at least until the release of the Q4 results in late January. A potential drop of 5% -7% would improve the margin of safety and make the valuation more attractive.
An aging population in many of its major markets and higher healthcare spending in emerging markets are likely to give Smith & Nephew the wind in the coming quarters.
2. ConvaTec
Reading-based member, medical technology group ConvaTec specializes in the management of chronic conditions. It is known for products that focus on advanced wound care, ostomy care (for the removal of body waste), continence, intensive care and IV care (or intravenous therapy).
ConvaTec employs more than 9,000 people worldwide and generated sales of $ 1.83 billion (£ 1.37 billion) in 2019.
Since the beginning of the year, CTEC shares have returned by more than 8%. On November 22, the shares closed at 202.6p. ($ 11.15 for US-domiciled stocks). The dividend yield is 2.3%.
Management issued a trading update in late October. Sales were $ 493 (£ 369) million, a 6.5% year-over-year increase. Despite the increase in revenues, the pandemic continued to impact the Advanced Wound Care and Critical Care segments.
CEO Karim Bitar, satisfied with the results, commented:
“We continued to respond well to stronger-than-expected customer and patient demand, particularly in our infusion and continence and critical care businesses. We now expect to deliver top-line sales growth at the top end of our counseling range and previous margins for 2020. "
The forward price-earnings ratios and the price-earnings ratio of CTEC shares are 2.05 and 3.00, respectively. Like SN shares, we believe that CTEC shares may be suitable for long-term portfolios. Potential investors may want to consider buying the dips.
