The Bet: We recommend opening a buy bet in June Smith & Nephew (Expiry June 18th) at £20 a penny when the quote is standing at 547p - 550p. The stop loss is at 519p for a risk of £620 at our suggested wager.
The Fundamental View:
We were opening a buy bet on June Smith & Nephew on the back last week's revelation of a $100m hole in sales at its recently acquired Plus Orthopaedics business. The group added sales and profits for the year would be hit because of the issues with Plus which it bought last year for $1bn and where obviously due diligence was not quite up to scratch.
But our view is that given the way that the medical supplies group has stated that other than this its outlook is solid, and given we believe there are no more nasties to be revealed, the recent fall in the shares is more than enough to reflect any near term damage to profits.
Buy Smith & Nephew given that it is a relatively defensive business and one where solid growth is the norm
The Technical View:
The technical story here is that the shares have come down to the bottom of their near term range near 540p and while there may be an overshoot, this is where support has come in of late. Our target is at least a return to the top of the 2008 range at 650p plus.
The stop loss of 519p allows for a cushion below 2008 support.
Conclusion: Open a buy bet in Smith & Nephew on the basis that the recent sales blip is a one off.
*The value of investments can go down as well as up. Investing in equities can lose you part or all of your capital. Smaller company shares can be relatively illiquid and thus hard to trade. And that makes such investments more of a high risk than larger company shares. Futures, CFD and Margined Foreign Exchange trading carries a high level of risk to your capital. A key risk of leveraged trading is that if a position moves against you, the customer, you can incur additional liabilities far in excess of your initial margin deposit. Only speculate with money you can afford to lose. Futures, CFD and Margined Foreign Exchange trading may not be suitable for all customers, therefore ensure you fully understand the risks involved and seek independent financial advice if necessary. MF Global is authorised and regulated by the Financial Services Authority. |
