Interactive Investor

eyeQ: Smith & Nephew – a macro opportunity

interactive investor has teamed up with the experts at eyeQ who use artificial intelligence and their own smart machine to generate actionable trading signals. This healthcare giant has just become a lot more interesting.

19th March 2024 11:17

Huw Roberts from eyeQ

"Our signals are crafted through macro-valuation, trend analysis, and meticulous back-testing. This combination ensures a comprehensive evaluation of an asset's value, market conditions, and historical performance." eyeQ

Smith & Nephew

Trading signal: strategic long-term model
Model value: 1,139.90p
Fair Value Gap: -8.51% discount to model value
Model relevance: 84% 

Data correct as at 19 March 2024. Please click glossary for explanation of terms.

Smith & Nephew (LSE:SN.) is a healthcare stock that sells advanced medical devices around the world. It’s UK based but operates in more than 100 countries and generates a little over half its revenue in the US. In many ways it’s representative of your average FTSE 100 stock. UK-listed, but as much a play on the global economy as the domestic UK outlook.

Which is why investors need to understand the big picture angle for the company – how it is trading relative to global economic growth, to inflation pressures, what central banks are doing with monetary policy, etc.

Our macro relevance score - how confident we are in our model value - is 84%, and Smith & Nephew has been in a macro regime (the narrative that markets assign to price action) for over a year. So macro really matters in this instance.  

We flag now because the stock has just become a lot more interesting.

Why? eyeQ model value has risen 7.4% in March. But the stock price has slipped 2.2% in that time.

That divergence now leaves the stock 8.5% cheap to overall macro conditions, which is the cheap end of recent range for our Fair Value Gap (difference between our model value (fair value) and where the price currently is), which you can see in the chart below.

Do your own research on the company fundamentals but, from a pure macro perspective, these look attractive entry levels.

Source: eyeQ. Past performance is not a guide to future performance.

Useful terminology:

Model value

Where our smart machine calculates that any stock market index, singe stock or exchange-traded fund (ETF) should be priced (the fair value) given the overall macroeconomic environment.

Model (macro) relevance

How confident we are in the model value. The higher the number the better! Above 65% means the macro environment is critical, so any valuation signals carry strong weight. Below 65%, we deem that something other than macro is driving the price.

Fair Value Gap (FVG)

The difference between our model value (fair value) and where the price currently is. A positive Fair Value Gap means the security is above the model value, which we refer to as “rich”. A negative FVG means that it's cheap. The bigger the FVG, the bigger the dislocation and therefore a better entry level for trades.

Long Term model

This model looks at share prices over the last 12 months, captures the company’s relationship with growth, inflation, currency shifts, central bank policy etc and calculates our key results - model value, model relevance, Fair Value Gap.

These third-party research articles are provided by eyeQ (Quant Insight). interactive investor does not make any representation as to the completeness, accuracy or timeliness of the information provided, nor do we accept any liability for any losses, costs, liabilities or expenses that may arise directly or indirectly from your use of, or reliance on, the information (except where we have acted negligently, fraudulently or in wilful default in relation to the production or distribution of the information).

The value of your investments may go down as well as up. You may not get back all the money that you invest.

Equity research is provided for information purposes only. Neither eyeQ (Quant Insight) nor interactive investor have considered your personal circumstances, and the information provided should not be considered a personal recommendation. If you are in any doubt as to the action you should take, please consult an authorised financial adviser. 

Disclosure

We use a combination of fundamental and technical analysis in forming our view as to the valuation and prospects of an investment. Where relevant we have set out those particular matters we think are important in the above article, but further detail can be found here.

Please note that our article on this investment should not be considered to be a regular publication.

Details of all recommendations issued by ii during the previous 12-month period can be found here.

ii adheres to a strict code of conduct.  Contributors may hold shares or have other interests in companies included in these portfolios, which could create a conflict of interests. Contributors intending to write about any financial instruments in which they have an interest are required to disclose such interest to ii and in the article itself. ii will at all times consider whether such interest impairs the objectivity of the recommendation.

In addition, individuals involved in the production of investment articles are subject to a personal account dealing restriction, which prevents them from placing a transaction in the specified instrument(s) for a period before and for five working days after such publication. This is to avoid personal interests conflicting with the interests of the recipients of those investment articles.