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Stock of the week: Smith & Nephew

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Graham Spooner, investment research analyst at The Share Centre, picks British-based multinational medical equipment manufacturing company, Smith & Nephew as stock of the week.

FTSE 100 company Smith & Nephew is our last share tip of the week for 2017 because since hitting an all-time high in October, the shares have fallen back around 10% over the last month and a half, potentially giving investors a better entry point.

The global medical equipment manufacturer is an industry leader with three main global business units; Orthopaedic Reconstruction and Trauma, Endoscopy and Advanced Wound Management. These businesses jointly offer over 1,000 product ranges which are distributed in over 90 countries worldwide.

Interested investors should note that long-term fundamentals remain in place regarding its reliance on an ageing population as many of the diseases and conditions its products treat become more prevalent as the population gets older. The changing demographics of an ageing population therefore contribute materially to volume growth each year in all of the company’s businesses.

Sales from developed markets are also closely tied to the growth of an ageing population, so in emerging markets the wealth effect is just as important. Indeed, management have reported continuing improvement in its emerging market operations, with these areas experiencing ageing populations as well as very strong growth in average incomes.

Moreover, healthcare systems and hospital infrastructure are developing at a robust pace and this is where Smith & Nephew is looking to strengthen and ultimately aim to be market leaders in the BRIC nations (Brazil, Russia, India and China).

We may see cyclical and market fluctuations affect the company in the short-term, as an example, the series of natural disasters in the Americas this year held back some medical procedures, impacting sales. However, the longer-term drivers remain in place and the company has continued to show good underlying performances. Subsequently, we recommend Smith & Nephew as a ‘buy’ for investors seeking capital growth and willing to accept a medium level of risk.

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