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
by Huw Roberts from eyeQ
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"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
- Discover: eyeQ analysis explained | eyeQ: our smart machine in action | Glossary
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.
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