Plenty of FTSE 100 stocks could make great buys for my portfolio right now. But one has stood out for me for some time now. I am talking about the packaging provider Smurfit Kappa (LSE: SKG), which caught my attention once again when it released its full-year results for 2021 earlier this week. Both its revenue and earnings showed robust growth of 18% and 16% respectively. And it also has a positive outlook for 2022.
Relatively cheap FTSE 100 stock
This only adds to its good financial performance in the past. It is little wonder then that in the past five years, the stock has almost doubled. And going by its relative price, I reckon it could rise even further. It has a price-to-earnings (P/E) ratio of 19 times, which is just north of the FTSE 100 P/E of 17 times. I expect that this gap could widen over time though, going by Smurfit Kappa’s prospects.
Structural shifts in its favour
As an e-commerce stock, it might have been helped by the recent spurt in online shopping. But I do not believe that it was a one-off increase, but has in fact accelerated a structural shift in its favour. Moreover, as the economy continues to recover, consumer spending is quite likely to keep rising. Just today, numbers for the UK economy were encouraging. Growth for 2021 came in at 7.5%, a bounce back after the slump we saw in 2020.
Inflation is a stumbling block
Of course inflation could play spoil sport, holding back consumers’ ability to buy more as everything becomes more expensive. The company has also mentioned “unprecedented cost inflation” in its update, which reflects that high prices could hurt int two ways. But over the long term, say 10 years, inflationary trends are likely to even out. And that is the kind of holding period I have in mind for buying the stock.
As I see it, the e-commerce sector can show a whole lot of growth in the next few year and stocks like this one will only gain because of a boom in online spending. This is especially so because it is geographically diversified. This means that even if some of the more developed markets become saturated over time, it can potentially continue to find new pockets of growth.
Analysts are bullish
Interestingly, just to see if my opinion is shared by others, I checked on the forecasts for the stock. Turns out that all five analysts whose share price targets have been compiled by the Financial Times expect its price to rise in the next 12 months. The rise isn’t expected to be anything spectacular. The most optimistic see it at 13%, but that is not too bad, I believe. And if continued, could result in some pretty decent gains over the years.
These forecasts could change if the circumstances change, of course. But for now, I see a very good chance that Smurfit Kappa’s stock will continue to do well. I have already waited for too long to buy it, and now I think it is finally time to do so.
Manika Premsingh has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.
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