With the economy in bad shape and inflation raging, I would not be surprised if we see continued turbulence in the index. But turbulence can be a long-term investor’s friend. That is because it sometimes makes it cheaper to buy into companies with promising future prospects.

Here are three such FTSE 100 shares I would snap up for my portfolio today if I had spare funds to invest.

JD Sports

The sportswear retailer JD Sports (LSE: JD) is well-known thanks to its branches across the country – and indeed around the world.

But the most athletic thing about the JD Sports share price in the past year has been its downward movement. It has more than halved in the past 12 months.

Is that because of disappointing business performance?

I do not think so. The FTSE 100 company expects its headline profit before tax and exceptional items this year to be in line with last year, which was a record. Admittedly simply more of the same might seem like a letdown after years of growth. But this is in an environment where the firm faces risks from rampant inflation hurting profit margins and slowing consumer spending eating into sales.

The firm benefits from a proven business model, large customer base, and high brand awareness among its target audience. I think that gives it a long-term competitive advantage and I have been buying the beaten-up shares for my portfolio this year.

Legal & General

Financial services firm Legal & General (LSE: LGEN) has also seen its shares fall in the past year, by 19%.

A challenging economy could be bad news for profits at the company if investors start to pull out funds. But I see an upbeat long-term investment case here. Financial services is an area I expect to keep seeing strong customer demand. Legal & General has a long-established brand that helps it to capitalise on that. It also has a sizeable customer base.

The company has a progressive dividend policy, meaning it aims to grow its annual payout. That is never guaranteed but Legal & General has an impressive track record of dividend increases and currently yields a juicy 8.2%.

Smith & Nephew

Yet another FTSE 100 faller in the past year is medical devices manufacturer Smith & Nephew (LSE: SN). its shares are down 21% in 12 months.

But the company has a growth strategy that will hopefully see it increase both sales and profits in coming years. I like the company’s position within medical devices, an industry I expect to continue to benefit from rising demand thanks to aging, growing populations in many countries.

The pandemic showed one risk to the company, which is any slowdown in elective procedures hurting demand for its products. But with a backlog of operations outstanding, I expect positive business momentum for Smith & Nephew. I think it could be an attractive addition to my portfolio if I had the cash to invest.

But as a long-term investor, I’m looking at this pullback as a buying opportunity. With that in mind, here’s where I’m seeing value in the FTSE 100 right now.

Attractive long-term growth story

Let’s start with the healthcare sector. Here, I’m seeing value on offer from hip and knee replacement specialist Smith & Nephew (LSE: SN). At present, it’s trading on a forward-looking price-to-earnings (P/E) ratio of 13.

I own Smith & Nephew shares and I plan to buy more soon. I like the fact it’s a relatively ‘defensive’ company with an attractive long-term growth story (the world’s ageing population should drive demand for joint replacements).

I also like the nice dividend yield on offer. At present, the yield here is over 3%.

It’s worth pointing out that, like a lot of companies, Smith & Nephew is facing a few challenges at present due to supply chains and inflation. However, I think a lot of this is already factored into the share price.

Big dividend increase

Moving on to the financial services sector, I’m also seeing value in wealth manager St. James’s Place (LSE: STJ). Its share price has come down from above 1,700p to near 1,000p this year. It also has a P/E ratio of 13.

The reason I’m bullish here is that managing wealth these days is incredibly challenging. High stock market volatility, falling bond prices, tax changes, inflation… these are just some of the challenges we all face. This complexity should boost demand for the company’s services.

Looking beyond this, one big appeal of STJ is the dividend. This year, the company is projected to pay out 54.9p per share, which equates to a yield of around 5.5% at the current share price. It’s worth noting that the group just raised its interim dividend by a whopping 35%.

A risk to consider here is that STJ’s share price tends to fluctuate quite a bit with market volatility. If the FTSE 100 continues falling, returns from this stock could be disappointing.

In the long run however, I think the stock has the potential to generate solid total returns (capital gains and dividends) for me. I’m very tempted to add it to my portfolio.

A FTSE 100 profit machine

Finally, I like the look of online property powerhouse Rightmove (LSE: RMV) right now. The stock (which I already own) is currently trading on a forward-looking P/E ratio of a little under 20.

Now obviously the UK property market could be in for a challenging period due to the fact interest rates are rising so quickly (although this could be offset by the cut to stamp duty). This could have implications for Rightmove in the near term.

However, looking further out, I think this FTSE 100 company will continue to prosper. Britons remain obsessed with property, and Rightmove is the leader in the property portal space with a market share of over 80%.

It’s worth noting that Rightmove is also an extremely profitable company. Last year, its return on capital was about 280%. Over the long run, companies that generate high returns on capital tend to be good investments.

With the stock currently trading below 500p, down from near 800p late last year, I think it’s a good time to buy more shares for my portfolio.

[Just beginning your investing journey? Check out our guide on how to start investing in the UK.]

Safestore Holdings

What it does: Safestore is a leading self-storage provider operating throughout the UK and Europe via a network of 179 locations.

By Zaven Boyrazian. Safestore Holdings (LSE:SAFE) is the UK’s largest provider of self-storage solutions, with 179 facilities around the UK and Europe. In total, the group has just over 7.6 million square feet of leasing space at an 84.3% occupancy rate as of July 2022.

While self-storage is hardly the most exciting sector, it provides a critical service that’s growing in demand and generally resilient to economic shifts.

So far this year, Safestore’s revenue has grown by a solid 15.6% overall and 12.8% on a like-for-like basis. Management has also been exercising a bit of pricing power to bolster its average storage rate by 9.1% to £28.59 per square foot. And with only a handful of fixed operating costs, net profit margins stand at an impressive 42.7%

Despite delivering consistently impressive results, shares currently trade at a dirt-cheap P/E ratio of just 3.9. Pairing this with a 3.1% dividend yield makes me believe a bargain income opportunity has emerged for my stocks and shares portfolio.

Zaven Boyrazian does not own shares in Safestore Holdings.

NatWest

What it does: NatWest is a banking firm based in the UK. It specialises in a number of products, including personal and commercial banking.

By Andrew Woods. For 2021, NatWest (LSE:NWG) paid a dividend of 10.5p per share. At the time of writing, this payment equates to a dividend yield of around 4.66%. Although that’s not the largest yield on the market, I still consider it to be solid.

The company has been benefiting from a trend of rising interest rates. Rates have risen to 2.25% in the UK and may well climb higher as central banks seek to bring inflation under control.

Higher rates basically mean that banks can charge more for borrowing services. However, since they make loans and mortgages more expensive, some customers may be put off taking on more debt amid the cost-of-living crisis.

Regardless, the firm posted an operating pre-tax profit of £2.6bn for the six months to 30 June. This was up from £2.3bn for the same period in 2021. For now, at least, the bank appears to be in a strong position and my income favourite at the moment.

Andrew Woods has no position in NatWest.

Endeavour Mining

What it does: The company owns and operates gold mines across Africa. It makes money by selling the gold it extracts.

By Stephen Wright. Shares in Endeavour Mining (LSE:EDV) just hit a price that I find it impossible to ignore them at. That’s why they’re my top British income stock for October.

As a gold mining company, Endeavour’s profitability is tied closely to the price of gold. The higher the gold price, the more money the business makes.

Recently, the price of gold has been coming down, falling from $1,756 per ounce to $1,643 per ounce. And the stock I’m looking at has fallen from £18.09 per share to £15.83.

To me, this looks like a good opportunity to buy shares. Over time, I expect the price of gold to increase and I expect all gold mining companies to benefit.

The reason for focusing on Endeavour specifically, though, is that it has lower costs than its competitors. This gives it an advantage that I think is extremely difficult to replicate.

Stephen Wright does not own shares in Endeavour Mining.

United Utilities Group 

What it does: United Utilities supplies water and wastewater services to 7m households in the North West of England.

By Royston Wild. I think buying classic defensive shares could be a good idea as stock market volatility picks up. One I’m thinking of snapping up in October is United Utilities Group (LSE: UU). 

The outlook for the UK economy is plagued with danger as inflation soars and interest rates rocket. But our essential need for water means that revenues at suppliers like this remain rock-solid.

As a consequence, businesses like United Utilities have the financial clout and the confidence to raise dividends at all times. Indeed, for the years to March 2023 and 2024 City analysts are expecting total payouts of 45.57p and 49.42p per share respectively. 

These are up from last year’s full dividend of 43.5p per share. And they provide healthy yields of 4% and 4.4%.  

I also like United Utilities because a lack of industry competition provides revenues with additional security. Though bear in mind that changes to water UK regulations could have an impact on future earnings.

Royston Wild does not own shares in United Utilities. 

Glencore

What it does: Glencore is the world’s largest commodity trader, known for trading metals that include the likes of zinc, copper, lead, and nickel.

By John Choong. Bucking the trend of the FTSE 100, Glencore (LSE: GLEN) has outperformed the wider index by more than 20%, at the time of writing. Pair that with a decent dividend yield of just under 5%, and the commodity giant certainly looks like a lucrative income stock to buy for my portfolio.

In its latest half-year results, Glencore smashed it out of the park by posting top line and bottom line growth of 43% and 820% respectively. While the outlook for metals is a rather uncertain one given the economic conditions surrounding a global recession, management believes that the reopening of China in the second half of the year could boost its income stream, and dividend as a result, while helping to hedge against declining metal prices.

Nevertheless, it’s worth noting that the miner’s dividend isn’t well covered by current earnings and cash on its balance sheet. So any substantial decline in metal prices and overall demand could significantly hamper the dividend payout. 

John Choong has no position in Glencore.

Smith & Nephew

What it does: Smith & Nephew is a medical technology company that specialises in hip and knee implants and advanced wound management.

By Edward Sheldon, CFA. Smith & Nephew (LSE: SN) shares have fallen in recent months due to challenges associated with supply chains, inflation, and China, and I think the share price fall has created an attractive buying opportunity for long-term investors like myself.

In the near term, the challenges I’ve mentioned above could persist. However, eventually, I expect them to moderate as the world returns to normal after the pandemic. And when they do, sentiment towards the healthcare stock should improve. It’s worth noting that, in many countries, there are large backlogs for joint replacement surgery.

Meanwhile, the long-term growth story here remains attractive. By 2030, one in six people globally will be 60 or over. This is likely to create strong demand for joint replacements.

With the stock currently sporting a P/E ratio that is not much higher than the average FTSE 100 P/E, and offering a dividend yield of about 3%, I think it’s a good time to be buying here.

Edward Sheldon owns shares in Smith & Nephew.

BAE Systems

What it does: BAE Systems is a defense, aerospace and security company.

By Paul Summers. Finding a high-yielding income stock isn’t hard right now. Then again, I think it still pays to be cautious. With a recession already here/on the way, many companies may reduce their cash returns or cut them completely. That’s why my pick is BAE Systems (LSE: BA).

Prompted by the invasion of Ukraine, its shares have been in fine form in 2022. This has reduced the yield to a pretty pedestrian 3.2%. Even so, payouts are likely to be covered twice by expected profit. This arguably makes the £25bn cap a relatively safe play for income hunters.  

At almost 16 times earnings, the shares trade at a premium to their five-year average. Hence, there might be some profit-taking on the horizon. However, I think this is a risk worth taking. BAE boasts a superb record when it comes to consistently increasing its annual payouts. 

Paul Summers has no position in BAE Systems

Flat interim dividend

In July, the company announced an interim dividend of 14.4c per share. On the one hand that was not surprising. After all, it was in line with Smith & Nephew’s stated policy of aiming to pay out an interim dividend equal to 40% of its most recent full-year dividend.

On the other hand, though, the news that the interim dividend would be the same for the fourth year in a row was a little disappointing. Prior to the pandemic, the company regularly raised its annual dividend. It rarely held its interim payout flat, while boosting the final one, meaning the overall annual amount rose. That last happened in 2017. Apart from that, it had raised its interim dividend every year this century before 2020. Since then, it has held both it and the final one flat.

Might the dividend rise this year?

That does not mean that this year’s full dividend will be flat. Although it did not increase the interim payout, the company could still choose to boost the final payout – just as it did back in 2017.

Will this happen? Nobody knows. After all, having held the dividend flat for the past few years, management could decide to do the same again. Such payouts are never guaranteed.

It is not that the company lacks money to increase it. In the first half, its earnings per share more than covered the payout.

Smith & Nephew did not give any specific indication of its intention for the full-year dividend in the interim results. But it did mention a capital allocation policy it adopted last year, including making reference to “our existing progressive dividend policy”.

A progressive dividend policy is one in which a company aims to raise its total payout each year. The results mentioning such a policy makes me think that the annual one may grow this year. That would happen if the company increases the size of its final payout.

My move

Whether that turns out to be the case will become clear when the company publishes its final results, probably in February.

I see Smith & Nephew as a blue-chip company with a quality business. Demand for the sorts of medical devices it produces will likely remain high. As quality matters for its customers, the company has pricing power. The Smith & Nephew dividend yield is attractive to me already. Any increase would only make it more so.

I do still see risks. Recovery from the pandemic has been slow, and inflation threatens to eat into profit margins. But I like the business and would consider buying the shares for my portfolio. If I do that now, hopefully I can benefit if the company starts increasing its annual dividend again.

Exposure to the housing market

First, the Taylor Wimpey (LSE:TW) share price is down 12.5% in the last month. At the time of writing, it’s trading at 106p.

For the six months to 30 June, profit margins increased due to shrewd land sales. Furthermore, the FTSE 100 housebuilder declared an interim dividend of 4.62p per share. This represents an 8% increase, year on year.

While I would be investing primarily for growth, it’s good to know that I could also derive income. Although I’m always aware that dividend policies can change in the future.

Over the same period, operating profit was basically flat, coming in at just over £420m. 

There has been some debate recently about how rising interest rates might affect the housing sector. This will likely make it more expensive for potential and current homeowners to take on or repay mortgages, according to HSBC. 

It’s possible that it may lead to a slowdown in the market, which could be bad news for Taylor Wimpey. 

On the flip side, the business has little debt and operating cash flow of over £173m. This should allow the firm to overcome any difficulties it encounters in the short term.

Solid cash flow

The second UK share I’m looking at is Smith & Nephew (LSE:SN.), the medical technology conglomerate. At the time of writing, the shares are trading at 1,110p.

For the three months to 30 June, the company reported that revenue grew by 1.2% to $1.29bn.

For the half-year to 30 June, revenue was flat at $2.6bn, while operating profit climbed from $239m to $242m. It’s worth noting, though, that this profit growth is not guaranteed in the future.

However, trading profit fell from $459m to $440m. This reflects the difficult current operating environment and the impact of inflation on the firm’s results.

Despite this, the business has operating cash flow of $721m and is therefore well-positioned to perform in challenging circumstances. 

In addition, it declared an interim dividend of ¢14.4 per share. As with Taylor Wimpey, I’m attracted by the fact that I could gain income from these investments while enjoying potential future growth.

Overall, these two companies may provide scope for growth and income, which is far more than I can expect from a savings account. Both are well-positioned to react to any short-term difficulties and to continue their expansion over the long term. To that end, I’ll add both of these businesses to my portfolio soon.

They also tend to offer goods or services that people continue to buy, even when the economy isn’t doing well. Branded goods are an example of this. But there are other examples, such as water, healthcare and even gold.

And as the UK economy gets weaker, I’m also looking at companies that will benefit from the weakness of the pound.

Smith & Nephew

There’s no doubt the last couple of years have been difficult for medical device manufacturer Smith & Nephew (LSE:SN). And its current share price reflects that. Peers in the industry have also endured a tough time as Covid-19 put many elective operations on hold.

But, finally, things are looking up for Smith & Nephew. There’s a considerable backlog of elective procedure in the UK, and there’s political determination to bring these numbers down.

The stock is currently trading at a discount versus pre-pandemic levels — almost trading for half its near-£20 highs three year ago. Costs are the new concern for investors, with inflation eating into margins.

However, I think Smith & Nephew has the capacity to pass these costs onto its customers. After all, they are necessities. And 2022 isn’t progressing as badly as the share price would suggest. Q1 saw expectations beaten, while Q2 saw continued growth. The company also left its full-year underlying revenue growth guidance unchanged at between 4% and 5%.

The firm also operates in 100 countries and that international customer base should be beneficial as the pound weakens.

I already own Smith & Nephew stock, but would buy more today.

Antofagasta

The Antofagasta (LSE:ANTO) share price has fallen considerably in recent months as copper prices tanked. This metal is the miner’s main product. It’s down considerably this year, but it is worth noting it’s still trading at prices way above the average for the past decade.

So why do I think a copper miner has defensive qualities? It’s not a conventional one for sure, but it’s the metal of electrification, and electrification is at the heart of the global energy transition.

It’s not just electric vehicles requiring more copper than combustion engine vehicles, it’s also an integral part of electric grid infrastructure. So copper demand is forecast to nearly double to 50m metric tons by 2035. 

As such, I believe the metal could be more resilient than most people think. Supply has been struggling to keep up with demand for years. And it’s also worth noting that government-backed infrastructure projects are normally used as a way to pull economies out of recession. So this could boost copper demand even further.

I’m also backing Antofagasta as it makes most of its revenue in dollars. Around 25% of revenue comes from Japan, while 17% is from China, and another 17% comes from Switzerland. The UK only accounts for 1%. So this should be good for a pound-denominated stock.

I don’t have shares in Antofagasta, but I’m looking to buy this stock for my portfolio.

The pandemic triggered a surge in fresh funding from governments and investors alike. And with this capital being allocated across a broad spectrum of research projects, the quality and quantity of healthcare products are forecast to rise rapidly. As a result, analysts predict the market opportunity for healthcare stocks will grow annually by double-digits over the next decade.

This obviously presents a potentially lucrative opportunity for investors. So, let’s explore the risks and rewards of investing in healthcare shares a bit further. 

What are healthcare stocks?

Healthcare stocks lie at the heart of the medical industry. And as the name suggests, these businesses are focused on maximising the quality of patient care to let people live longer and healthier.

Typically, healthcare shares can be organised into one of four categories:

• Healthcare providers – These firms are on the front line, delivering healthcare to patients first-hand. Such businesses include hospitals, physician practises, nursing facilities, and more recently, telehealth providers.
• Drug developers – Companies engaged in researching and developing new treatments and medicines to tackle diseases, infections, mutations, and disorders.
• Medical device designers – Groups designing and manufacturing devices to improve the quality of patient care. This can range from something as simple as a stethoscope to as complex as surgical robots.
• Payers – While less common in the UK, this segment includes all the businesses involved in helping cover medical costs like health insurance providers and pharmacy benefit managers.

This is by far one of the largest and most complicated industries to operate in. Due to the high degree of importance and expertise needed when handling patients’ lives, regulations are extremely strict. And, in some cases, create prohibitively expensive barriers to entry.

For example, both drug developers and medical device designers need to receive regulatory approval in each country where they wish to offer their products. 

Industry challenges

Here in the UK, that regulatory body is the Medicines & Healthcare Regulatory Agency (MHRA). In the US, it’s the Food & Drug Administration (FDA). And since every regulator has different standards and requirements, the price of checking off all the boxes gets expensive very quickly.

An approval prerequisite for drug developers requires clinical trials that can take over a decade to complete. Medical device designers need to demonstrate the safety and efficiency of their products with field data that’s expensive to gather.

Healthcare providers have to undergo similar approval processes, and payers are subject to significant financial oversight.

To put it simply, life is not easy for healthcare stocks. But for those that can overcome these regulatory hurdles without going bankrupt, an enormous market opportunity lies ahead. According to a 2020 report by the World Health Organisation, $8.3trn is spent annually on healthcare. That’s 10% of global GDP! And it’s still rising.

Therefore, it’s not surprising that some of the best-performing shares over the years operate within the healthcare sector. With that in mind, let’s explore the top five healthcare providers on the London Stock Exchange in order of market capitalisation.

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Top healthcare shares in the UK

AstraZeneca

AstraZeneca is one of the largest pharmaceutical companies and healthcare stocks in the world. Given its access to vast resources, the group develops new treatments for a wide range of diseases. The list includes cancer, cardiovascular, renal respiratory diseases, and immunology and other rarer conditions. 

It already has a diverse portfolio of products on the market and, more recently, is known for its Covid vaccine. Looking at the current project pipeline, AstraZeneca has 183 drug candidates being researched, with 16 in late-stage development and two under regulatory review.

Key Metrics:

• Market cap: £157.2bn
• Average daily volume: 2.39m 
• HQ: Cambridge, UK
• Cash/debt: $6,398m/$30,781m

GlaxoSmithKline

GlaxoSmithKline is a global leader in vaccines and pharmaceutical treatments targeted at cancer, HIV, immuno-inflammatory, and respiratory diseases. The healthcare company has established research teams and manufacturing facilities worldwide, providing a global distribution network, particularly across the US, Europe and Asia.

With over 1,500 active partnerships with external pharmaceutical organisations and governments, GlaxoSmithKline stands out amongst the crowd of healthcare stocks. Until recently, It also had a consumer healthcare division that has since been spun off into its own company called Haleon. The group is now purely focused on developing new treatments.

Key Metrics:

• Market Cap: £67.45bn
• Average Daily Volume: 6.67m
• HQ: Brentford, UK
• Cash/Debt: £6,532m / £22,111m

Smith & Nephew

Founded in 1856, Smith & Nephew is one of the oldest medical device manufacturers in the world. The group operates in over 100 countries, supplying medical institutions with critical equipment and consumable accessories.

The healthcare stock is renowned for its expertise in wound management with its diverse portfolio of dressings, as well as products tackling other areas. The list includes orthopaedic reconstruction (knee, hip, and shoulder joint replacements), hospital imaging systems, trauma fixation products, and tools performing a variety of medical procedures.

Key Metrics:

• Market cap: £10.9bn
• Average daily volume: 2.64m
• HQ: London, UK
• Cash/ebt: $1,290m/$3,339m

Hikma Pharmaceuticals

Hikma Pharmaceuticals is a global drug developer with a massive portfolio of over 670 generic and in-licensed products on the market today. The group’s expertise in replicating off-patent medicines drastically reduces costs for patients while simultaneously improving accessibility.

Beyond the generics, Hikma also has its own drug development pipeline for new and bespoke treatments that target various therapeutic categories such as anti-infectives, cardiovascular, central nervous system, diabetes, cancer, respiratory, and pain management.

Key Metrics:

• Market cap: £3.83bn
• Average daily volume: 1.07m
• HQ: London, UK
• Cash/debt: $450m/$846m

Spire Healthcare

Spire Healthcare is the UK’s largest independent hospital stock serving the private healthcare sector. The company has 47 facilities scattered across the country, providing the standard range of services, including diagnostics, inpatient care, and outpatient care.

The group collaborates with almost 8,150 experienced consultants to handle a long list of medical circumstances such as orthopaedics, gynaecology, cardiology, neurology, oncology, and general surgery.

Key Metrics:

• Market cap: £826.5m
• Average daily volume: 865.41k
• HQ: London, UK
• Cash/debt: £203m/£1,265m

Investing in the US healthcare industry

American healthcare stocks are bound to the same degree of regulatory restrictions. However, US healthcare spending represents almost half ($3.8trn) of the entire market worldwide. So, it’s hardly surprising that there is a far longer list of healthcare shares across the pond for investors to choose from.

Some of the leading names in this sector on the New York Stock Exchange and Nasdaq, in order of market capitalisation, are:

1. Pfizer Inc (NYSE:PFE)
2. Intuitive Surgical (NASDAQ:ISRG)
3. Moderna (NASDAQ:MRNA)
4. Masimo (NASDAQ:MASI)
5. Teladoc (NYSE:TDOC)

Are healthcare stocks right for you?

While healthcare shares are often perceived as a relatively stable and safe place to invest, that’s often not the case. As I’ve already explained, the costs of operating in this sector are exceptionally high, especially for drug developers. 

Consequently, these firms are typically highly leveraged, with enormous credit facilities being used to fund research, development, trials, and eventually manufacturing. That creates quite a bit of risk. After all, if a product fails during development or regulators decide it isn’t safe, a lot of capital can go down the drain.

Needless to say, this can make investing in healthcare stocks a risky endeavour. Even more so when it comes to the smaller players with restricted access to precious external financing. 

That means healthcare shares probably aren’t suitable for everyone. But for those willing to take on the risk, there is a multi-trillion-dollar market opportunity available to profit from. And by taking a diversified approach, investors can potentially reap substantial returns through multiple channels.

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Disclosure

Zaven Boyrazian owns shares in Masimo, Intuitive Surgical, and Teladoc.

Out of charge

Singapore-based XP Power (LSE: XPP) develops and manufactures critical power control solutions for the IT, Healthcare and Semiconductor Manufacturing Equipment sectors. Once upon a time, it also helped power my portfolio to new heights. Sensing that the valuation was looking frothy (and having held for quite a while), I sold my holding for a lovely profit. Since then, the shares have tumbled.

Luck or skill? Probably a lot more of the former. Having halved in 2022 alone, however, I’m tempted to get involved again.

Multiple headwinds

Monday’s half-year results contained a few chinks of light. Order intake rose 23% to a little over £193m and demand for its products “remains strong” with a record order book.

However, XP Power’s revenue (£123.6m) actually fell back by 1% from the same period in 2021 once exchange rates were taken into account.

There wasn’t just one headwind. Over the six months, XP faced “industry-wide component shortages, a five-week Covid-19 lockdown in China, and extended component lead-times“. Throw in rampant inflation and you’ve got a pretty toxic mix.

As a result of all this, the company isn’t quite sure what to expect in terms of full-year numbers. I’m also a little worried that net debt has now “risen substantially” to £102m.

Nice price

As important as it is to take these issues seriously (and recognise that the share price could go lower), I think a lot is already priced in here. As I type, XP Power’s price-to-earnings (P/E) ratio has now fallen back to 13. That’s attractive for a market leader with quality hallmarks, with usually strong fundamentals and with customers that tend to stick around.

The interim dividend was also maintained, suggesting that management believes these pressures are temporary.

I would have no issue starting to re-buy a position now for the long term

Another bargain stock

A second bargain stock in my view is medical tech giant Smith & Nephew (LSE: SN).

This may seem like a controversial pick. The company’s shares have performed poorly in recent times. In fact, things are so bad that the FTSE 100 member’s valuation has now dipped below where it was back in March 2020 when the first UK lockdown was ordered.

What’s behind all this? Again, there’s not just one reason. Surging inflation and supply chain issues have reduced margins. However, a lot of elective surgery has also been postponed due to pressures on resources since Covid-19 first arrived.

Long-term hold

It’s clear new CEO Deepak Nath has got a challenge on his hands. Consequently, I don’t expect Smith & Nephew shares to rocket any time soon.

Notwithstanding this, I maintain that this could eventually prove to be a solid holding once normality returns — whatever that looks like. An ageing global population should be a significant growth driver, especially for its Orthopaedics and Trauma division that specialises in supplying knee and hip implants.

Considering its price/earnings-to-growth (PEG ratio) now comes in around one, I’d be comfortable buying the shares today.

The bank Fineco has released a list of the shares that were the most popular among its investors in the first half, based on how long they were held. The top five includes names like Argo Blockchain and Deliveroo. But the fifth most popular among these buy and hold shares was a much more established company that caught my attention: medical devices producer Smith & Nephew (LSE: SN). Like some other investors, should I also be holding this share in my portfolio?

Strong global position

Smith & Nephew is a multinational company selling a variety of medical devices in dozens of markets.

I like that business area because demand for medical devices will likely remain robust. Indeed, over time as the global population and income levels grow, I expect it to get even stronger. That growth may not always be smooth. During the pandemic, for example, many hospital procedures were delayed, which led to sales falling. That could happen again in future.

But I reckon the long-term demand outlook is good and Smith & Nephew should be well-positioned to benefit from this. 

Some of its products are unique, giving it a competitive advantage. The company is also trying to improve its growth rates compared to how it has been doing over the past few years. If that strategy quickens product innovation and opens up new markets, it could be good for sales and profits. When the company reports its interim results to the market later this month, hopefully they will include some indication of early progress on the growth strategy.

Growth and income prospects

One thing I like about this business model is that it tends to be consistently cash generative. Historically that has supported a generous dividend that has grown over time. Currently, the dividend yield is 2.5%. Last year’s dividend was covered by earnings more than twice over. That gives the company a margin of safety – even if earnings slip a bit, it should still be able to pay its dividend comfortably. Indeed, the company had a good track record of raising the annual dividend until 2019, but lately it has been kept flat.

If the company’s growth focus does boost profits, that could be good news for the dividend as it would enable growth to restart.

Shares to buy and hold

With the growth prospects ahead, I think the company’s price-to-earnings ratio of 16 looks reasonable. The shares have fallen 27% over the past year, so I see the current price as a more attractive entry level for me than was available a few months ago.

In the long-term, I like the business sector and growth prospects for Smith & Nephew. They are the sort of buy-and-hold shares I would consider adding to my portfolio.

The list contains companies from the UK as well as from across the pond. And, sometimes, even “boring” stocks from the FTSE 100 make the cut.

With that said, here is one of my top picks from the UK’s leading index for 2022 and beyond.

A good buy today?

Despite the ongoing stock market turmoil and economic slowdown, one industry that seems to be largely unaffected is healthcare. After all, regardless of what the economy is doing, medical care often remains a top priority for individuals who need it.

That’s what’s brought Smith & Nephew (LSE:SN) onto my radar recently. As a quick reminder, the firm is a leading manufacturer of wound care products as well as orthopaedic devices. Demand for the former has remained relatively consistent throughout the group’s history. And with the global population on the rise, management has had little trouble finding new markets to penetrate.

However, the same cannot be said for its orthopaedic devices. In 2020, with hospitals fully focused on tackling the pandemic, the vast majority of elective surgeries were cancelled or postponed. Subsequently, both revenue and profits for this group took a double-digit hit. But skip ahead to today, and the story is very different.

At the end of 2021, revenue made a full recovery and even surpassed pre-pandemic levels, with earnings per share not far behind. And looking at the latest first-quarter results for 2022, this momentum has continued.

Domestic growth has returned to single digits. But management’s penetration into emerging markets like India has delivered a 14.3% growth rate so far this year.

Pairing this with newly approved software for its robotic CORI Surgical System makes me quite optimistic about the long-term potential for this FTSE 100 stock. And it’s why this business is on my ‘best stocks to buy’ list.

What are the risks?

Like every investment, there is no guarantee of returns. And this company, in particular, has to navigate what could be one of the most complex regulatory environments on the planet. All its products must be approved by each regulator of each country it wishes to operate in. Needless to say, this creates many additional expenses that may not be recovered even if approval is granted. After all, there are other companies competing for market share.

A more recent concern I have is a shift in management. Despite only joining in 2019, CEO Roland Diggelmann is stepping down. His successor is Dr Deepak Nath previously held leadership roles at Siemens Healthineers and Abbott Laboratories. He certainly seems qualified for the role, but only time will tell whether he can live up to expectations.

Personally, I’m cautiously optimistic. And with demand for the group’s products unlikely to disappear even in the tightest economic environments, I reckon Smith & Nephew is one of the best FTSE 100 stocks to buy now for my portfolio.