I believe that share pickers need to ignore a recent disappointing update over at Smith & Nephew(LSE: SN) and consider the bright long-term demand picture for its cutting-edge medical technologies.
In November the FTSE 100 business warned that, due to recent trading troubles, it expects underlying revenue growth for the full year to register around the lower end of its guidance of 3%-4%. It also expects its trading profit margin improvement to come in at the lower end of an expected 20-70 basis points.
A medical miracle
Whilst the headline takeaways from Smith & Nephew's latest release were not exactly positive, the update did underline the company's brilliant progress in emerging markets.
The medical mammoth saw sales to these territories rise 9% in July-September, to $195m, building on the 13% advance punched in the prior quarter. Conditions have improved more recently important in key markets like China, and a backcloth of surging healthcare investment in the world's developing economies should increase demand for Smith & Nephew's products looking down the line.
Smith & Nephew has seen its price slip heavily from the record tops of £14.30 per share set in late October, falling 11% to current levels. I see this is a prime dip-buying opportunity given the company's still-robust earnings outlook for the years ahead.
Indeed, City analysts have been busy marking up their medium-term earnings forecasts, and they now expect Smith & Nephew to follow a 7% improvement in 2017 with a 6% advance in 2018.
These expectations of a return to profits growth are expected to get dividends moving higher again, too, after the firm locked the dividend at 30.8 US cents per share last year. Dividends of 33.6 cents in 2017 and 35.8 cents in 2018 are being predicted, resulting in sweet yields of 2% and 2.1% respectively.
Smith & Nephew can look to its exciting growth territories, as well as its vastly improved product portfolio, to underpin steady earnings and dividend expansion in the years ahead. As a consequence I reckon a slightly-toppy forward P/E multiple of 19.4 times still represents cracking value for money.
Risky but rewarding?
Burberry Group (LSE: BRBY) is another share I am expecting to deliver meaty returns in the years ahead.
The London designer has spooked investors in recent weeks with news that, under the stewardship of new chief executive Marco Gobbetti, it plans to reinvent itself as a super luxury brand that will see it "change [its] approach to product, communication and customer experience."
The news came hot on the heels of an announcement in late October that creative mastermind and former CEO Christopher Bailey will leave the company at the end of 2018, creating a hugely uncertain time for the firm.
In the more immediate future, City analysts are expecting Burberry to generate earnings growth of 5% and 1% in the years to March 2018 and 2019 respectively. And this is expected to keep its progressive dividend policy in business, resulting in chunky dividend yields of 2.3% and 2.5% for this year and next.
A forward P/E ratio of 21.4 times may be considered too heady for many given Burberry's now-uncertain outlook. But I believe the strength of the Burberry brand, allied with the size of the elite luxury market, could still create blistering profits growth in the years ahead.
Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Burberry. 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.