The Brexit ‘process’ has done a good job of dividing the nation into two ‘tribes’ and raising the collective national blood pressure to unsustainable levels. Something must give, and I strongly suspect we’ll see an imminent bursting of the bubble to relieve the pressure!
Indeed, my guess is the UK will leave the EU soon, despite all the kicking and screaming and, when it does, where will that leave investing? In good shape, in my view. Because many of the firms listed in the FTSE 100 index, for example, have big multi-national operations that will probably be largely unaffected by the UK changing its trading relationship with the countries within the EU.
So, right now is as good a time as any to pick up shares in great, cash-generating businesses that have strong trading niches. Here are two I’d happily add to my portfolio before Brexit.
At the end of July in its half-year report, medical devices maker Smith & Nephew (LSE: SN) produced a comfortable set of trading numbers, suggesting the business is ticking along nicely. I like the firm because it has a decent multi-year record of generally rising revenue, cash flow, and earnings backing up its progressive dividend policy.
In today’s world, it’s hard for me to imagine demand drying up for the company’s joint implants, instruments, and hardware for stabilising fractures. Those and other medical products keep the firm operating in a defensive economic niche that’s great for shareholder returns.
In the July report, chief executive Namal Nawana said positive momentum across the business led the directors to upgrade their guidance for full-year revenue growth. Meanwhile, City analysts following the firm expect earnings to rise this year and next by percentages measured in either high single digits or in the low teens.
There’s no sign of weakness in the business, but the valuation looks quite full. Indeed, the forward-looking earnings multiple for 2020 runs just above 20, but I reckon the quality of the set-up justifies a higher rating.
Fast-moving consumer goods
There’s change at the top for Reckitt Benckiser (LSE: RB). New chief executive Laxman Narasimhan started in his post on 1 September, and I see refreshed leadership as a potential positive in any company.
In July, the firm reported a flat first half but anticipates progress in the second half of the year. Although the Hygiene Home division delivered top-line growth, progress in the Health division in the second quarter of the year was “disappointing.”
The firm is working hard to make its two divisions structurally independent and expects to complete the process in the middle of 2020. Meanwhile, I have faith that Reckitt Benckiser’s strong brands, such as Dettol, Harpic and Neurofen, will keep powering cash flow to enable the continuation of dividend progression, which has been a feature of the financial record for years.
As I write, with the share price near 6,220p, the forward-looking earnings multiple for 2020 sits below 18. I’d buy some of the shares at this level.
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Kevin Godbold has no position in any share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2019