Tuesday newspaper share tips: Smith & Nephew, Meggitt

Smith&Nephew offers investors exposure to good market positions, especially in the emergng markets space, and a way to tap into the company´s successful acquistion track record, The Times´s Tempus says.

To take note of, the business is always facing one headwind or another - be it in the form of currency moves or product setbacks - yet over the past decade the medicals group has delivered capital appreciation far in excess of its peers.

Over that time span, it has clocked in with a capital gain of 182%, 12 times more than the average for the FTSE 100´s constituents.

True to form, yesterday the company unveiled plans to hive of fits gynaecological arm to Medtronics as it fired the starting pistol on a $300m share buyback programme, with a view to not spreading itself too thin.

Is that the best it can do with its cash? Well, since taking the helm 2011 its boss Olivier Bohuon has struck 20 deals going so far as to interrupt a previous buyback in 2013 to finance his largest takeover - ArthroCare - giving it a foothold in sports medicine.

Business in China and the Middle East has slowed down recently, "but S&N’s strategy of chasing emerging markets business is always going to produce local setbacks. Strip out China and emerging markets revenue growth is strong," Tempus argues.

Cost savings are continuing to roll-in at an annualised pace of $110m.

Trading on a price-to-earnings ratio of 19 and offering a dividend yield of 1.8% the stock is not cheap.

Nonetheless, "for all the setbacks, S&N tends to confound the doubters. And if it doesn’t, the bid speculation that periodically hangs around the shares and has dissipated recently will return," the tipster added.

"Buy", Tempus concluded.

After trailing the FTSE 350 industrials by 30% over the past three years Meggitt has attracted the attention of US activist hedge fund Elliot Advisers and possibly with good reason, the Financial Times´s lex column said.

Its stock vaulted higher on news that the Americans had picked up 5% of its stock.

The company makes money from selling aircraft parts and cost and afterwards cashing in on the necessary maintenance and repairs. However, carriers have increasingly been sourcing second-hand parts.

Meggit has also moved into the higher-margin business for composite materials and spending on research and development recently peaked at 10% of sales.

Nonetheless, cash flow has been positive and steady and should benefit as R&D comes down and air traffic should continue growing at 5% per year, although its debt pile has jumped to three times operating profits.

"It may be that Elliot thinks big changes are needed. More likely it sees value in Meggitt," Lex said.