Advanced Medical Solutions

What it does: AMS designs, develops, and manufactures innovative tissue-healing technology and wound-care. Previous highest market cap: c.£900m.

By Dr James Fox. Advanced Medical Solutions Group (LSE:AMS) develops and sells wound treatment products that help repair and close up damaged and cut tissue during and after surgery. These products are distributed in 80 countries around the world.

The Cheshire firm is a well-run, cash generative business with strong positioning in end markets. These positions will likely be enhanced by some exciting launches including LiquiBandFix8 – a cyanoacrylate adhesive designed to fix mesh to tissue inside the body.

I’m also anticipating increasing demand. With large elective procedure backlogs around the world, wound treatment products will likely experience a tailwind in the coming years.

Inflation is an issue, but in its full-year review the company said it had adjusted pricing accordingly. More adjustment may be required.

With a market cap just over £501m, it’s got some way to go to reach £1bn. But I’m channelling my inner Warren Buffett, It’s a quality company, and I believe it’s discounted at just 20x earnings.

Dr James Fox does not own shares in Advanced Medical Solutions Group

Yellow Cake 

What it does: Yellow Cake holds and trades uranium which it acquires from Kazatomprom, one of the world’s biggest producers. Previous highest market cap: £914m

By Royston Wild. Nuclear energy remains an unpopular sector for many share pickers. But as the world moves away from fossil fuels, stocks that supply radioactive fuel might have as much investment potential as renewable energy shares. 

This is where Yellow Cake (LSE:YCA) comes in. It holds and trades uranium, a commodity for which demand is tipped to soar as construction of new nuclear reactors booms.  

There are currently 440 reactors in operation today, according to the World Nuclear Association, and another 60 in construction. The International Energy Agency reckons global nuclear capacity will soar 42% between 2020 and 2050. 

Buying shares in this UK stock has one clear advantage over investing in a uranium producer. This is because it doesn’t expose shareholders to exploration, mine development, or production risks that can be devastating for returns. 

On the other hand, war in Ukraine poses an ongoing threat to Yellow Cake. This is because the material it acquires from Kazakhstan is shipped through Russia, leaving it vulnerable to potential supply problems.

But the nuclear industry has so far been unaffected, and on balance I think the potential rewards of owning this UK share outweigh the dangers.

Royston Wild does not own shares in Yellow Cake. 

Yellow Cake

What it does: Yellow Cake buys and stores physical uranium and looks to exploit opportunities arising from this.

By Paul Summers: I’ve been watching the rise of Yellow Cake (LSE: YCA) with interest. The share price has now doubled in five years.

Recent gains can be linked to Russia’s invasion of Ukraine. The concern is that the former – a leader in uranium conversion and enrichment – will now stop trading with Western nations. This could make the metal more expensive at a time when attitudes toward nuclear energy are improving thanks to the relatively small amount of waste it produces.

To be clear, this is not a stock for widows and orphans. Investors steered clear of uranium for a decade following the Fukushima nuclear plant accident in 2012.

Yellow Cake doesn’t pay a dividend either.

Considering that the UK stock’s marlet cap now stands at £835m, however, I think there’s a good chance the company’s valuation eventually passes the £1bn threshold if, as expected, demand begins to outstrip supply.

Paul Summers has no position in Yellow Cake

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UK shares continue to fall

Macroeconomic headwinds have pushed down many stocks. This is due to soaring inflation and rising interest rates. As a result of these issues, a cost-of-living crisis has emerged in the UK. All these events have caused many stocks to appear as attractive prospects to boost my holdings.

Advanced Medical Solutions designs, develops, and manufactures wound-care products in the healthcare space. It possesses branded and non-branded products. Some of its products can be used generally, while others are especially used in specific elective surgical procedures.

As I write, the shares are trading for 242p. At this time last year, the shares were trading for 292p, which is a 17% drop over a 12-month period. This is a trajectory that many other UK shares have experienced recently.

The bull and bear case

I’m buoyed by Advanced Medical Solutions’ diversified business model and market position. It operates in over 80 countries, providing both its branded and non-branded products to a plethora of markets and territories. Furthermore, it is one of the leading companies in the wound care market. This position and profile could help boost future earnings and returns.

Next, there is still a backlog of elective surgeries throughout the world. Some of Advanced’s products are key in these procedures. This backlog could offer a long-term revenue stream, in my opinion.

Moving on, it has a good track record of performance. I can see it has recorded revenue and profit growth for the past three years. In addition to this, the shares would boost my passive income. On a dividend yield of just under 1%, there are UK shares with higher yields out there, but I believe Advanced’s yield could grow in line with the business over time. However, I am aware that dividends are never guaranteed and past performance is not an indicator of the future.

To the bearish perspective then, Advanced shares look a bit expensive to me. Trading on a price-to-earnings ratio of 26, the shares could fall if any negative trading news were to be released, for example.

Finally, one big issue that could hinder the company is current inflationary pressures. These rising costs could squeeze profit margins when it develops and sells its products. This is something impacting many other UK shares too.

What I’m doing now

Right now I believe that Advanced Medical Solutions could be a shrewd addition to my holdings. If I had the spare cash to invest, I would be willing to buy some shares for my holdings.

I’m buoyed by Advanced’s market position and profile as well as recent performance record. There is a passive income opportunity on offer too and the business has one eye on growth through product development. For example, it recently announced the launch of its LiquiBandFix8 hernia surgery product. It was granted pre-market approval ahead of schedule and the firm is now in the process of selecting a strategic partner to bring it to market.

To conclude, Advanced Medical Solutions looks to me like a good opportunity right now, and there are lots of other UK shares that look enticing to me too.

The post As UK shares struggle, here’s one top pick to buy for my holdings appeared first on The Twelfth Magpie.

Advanced Medical Solutions

What it does: AMS designs, develops, and manufactures innovative tissue-healing technology and wound-care.

By Dr James Fox. I bought Advanced Medical Solutions Group (LSE:AMS) shares a few weeks ago, and while I was buying for the long run, they’ve been good to me so far. At the time of writing, the stock is up 7% since purchase.

It’s a medium-sized business with a track record of delivering strong cash flows and has a competitive advantage in its specialised medical products. It also operates in a highly resilient sector – namely healthcare. Moreover, given the elective procedure backlog, demand should be strong.

The Cheshire-based firm has a reputation for healthcare innovation, and this will likely be enhanced by the launch of LiquiBandFix8. The hernia surgery product was granted pre-market approval ahead of schedule and is now in the partner selection phase.

US LiquiBand sales fell in the first half of the year, and that’s a concern, but the company says partner negotiations are progressing well. Hopefully this will contribute to an uptick in sales and overall revenue in the second half.

James Fox owns shares in Advanced Medical Solutions.

Barclays 

What it does: Barclays is an international bank with operations including retail and investment banking.  

By Charlie Keough. I recently opened a small position in Barclays (LSE: BARC). The stock has struggled year to date, down around 8% as I write. However, I’m optimistic. 

First of all, it offers a dividend yield of over 5%, which should be well covered by earnings. Its half-year results also saw its interim dividend increase, while a new share buyback scheme of £750m was launched.

On top of this, its shares also trade on a price-to-earnings ratio of just 4.3.  

Barclays also has an edge over some of its competitors with its balance between tight-knit risk management versus global opportunities, in my opinion.  

And in the years ahead, banks should bounce back when interest rates begin to come down again closer to the 2-3% range.  

Global economic uncertainty and volatility surrounding the banking sector could damage the share price. After all, the turmoil we saw earlier this year saw the stock hit a 52-week low.  

However, as a long-term buy, I think Barclays shares are a smart move.  

Charlie Keough owns shares in Barclays.  

Cerillion

What it does: Cerillion is a software business that provides billing, charging, and customer relationship management (CRM) solutions, predominantly to telecoms firms.

By Edward Sheldon, CFA. Cerillion (LSE: CER) shares recently experienced a pullback and I took the opportunity to boost my holding in the software company.

This is one of my favourite stocks on the UK’s Alternative Investment Market (AIM). For starters, the company is growing at a rapid rate. Over the last five financial years, revenue has more than doubled as businesses have embraced Cerillion’s software solutions. For the year ending 30 September 2023, analysts expect top-line growth of 17%.

Meanwhile, its financials are strong. Return on capital (a key measure of profitability) is high and there’s no debt on the balance sheet. As for the dividend payout, it’s growing at a very fast pace (the H1 payout was hiked by 27%).  

The downside to buying these shares is that its valuation is relatively high. Currently, the forward-looking price-to-earnings (P/E) ratio is a little over 30, which doesn’t leave much room for error.

I’m comfortable with this valuation, however, given the company’s growth track record and superb financials.  

Edward Sheldon owns shares in Cerillion

EOG Resources

What it does: EOG Resources develops, produces, and markets crude oil and natural gas liquids, primarily in New Mexico and Texas.

By Gordon Best. I’ve been buying shares in EOG Resources (NYSE:EOG) recently. 

After the energy sector soared in 2022 amid geopolitical uncertainty, the sector has been the worst performing of the S&P 500. However, the price of crude oil has started to rebound, indicating a potential buying opportunity. EOG Resources has always been a favourite of mine, with a price-to-earnings (P/E) ratio of 8.1 times well below the sector average of 13.2 times. 

A notable risk is how cyclical the energy sector can be, amid growing focus on clean energy. Negative sentiment or reduced demand would impact the share price. However, through economic uncertainty, oil demand is likely to be high, and with large cash reserves, the company is well positioned to perform decently regardless.

With a generous dividend of 5.6%, and a strong track record of growth, I see EOG Resources as a solid defensive investment for my portfolio. 

Gordon Best own shares in EOG Resources.

Glencore

What it does: Glencore is a leading global producer of metals and minerals, and also makes money from commodity trading and arbitrage.

By Harvey Jones. My portfolio is light on commodity stocks so when I saw Glencore (LSE:GLEN) shares had dipped 20% in a matter of months, I jumped at the chance to buy on 26 July. I’ve had a bumpy ride so far, although I expected that. This sector is more volatile than most.

Investors have been spooked by signs of disinflation in China while the US could still fall into recession, hitting commodity demand and prices.

On Tuesday, Glencore reported that first-half earnings had halved to £9.9bn, due to weaker commodity and energy prices. Management also blamed “inflation, tighter monetary conditions and limited global economic growth”.

Despite that, I’m happy with my purchase. The stock looks good value trading at 9.5 times forecast earnings and is still expected to yield 7.91% this year and 6.68% in 2024.

Since I’m aiming to hold for a minimum of 10 years and ideally longer, I can ignore short-term bumpiness and allow time for my dividends and share price growth to compound.

Harvey Jones owns shares in Glencore.

Lloyds

What it does: Lloyds is the UK’s largest mortgage provider. It’s also one of the nation’s biggest banks with over 30m customers.

By John Choong: With the Lloyds (LSE:LLOY) share price sinking below 50p recently, I’ve been steadily buying up shares of this leading UK bank. While headline results disappointed some investors, causing the sell-off, I focused on the fundamentals instead.

Rather than reacting to short-term noise, I’m taking a longer-term outlook. After all, management upgraded guidance despite economic uncertainty, with its dividend jumping 15% as well. Bearish views seem to overlook Lloyds’ strong outlook too, as I expect net income to jump as structural hedges take effect in H2, with cost-cutting benefits expected to provide a tailwind.

Trading below tangible book value as well, Lloyds shares offer deep value versus peers as the bank has room to expand margins through fee income and digital offerings. While some fret over near-term headwinds, I’ve been opportunistically buying Lloyds stock on weakness. The future looks bright for this stable UK bank once the clouds clear.

John Choong has positions in Lloyds

Mastercard

What it does: Mastercard is a payment processing company enabling consumers and businesses to complete electronic payments.

By Zaven Boyrazian. While the ongoing cost-of-living crisis continues to put pressure on families, the economic landscape has started to improve both in the UK and internationally. Consumer spending is slowly recovering as inflation begins to cool off. And it’s allowed payment processing giants like Mastercard (NYSE:MA) to enjoy some impressive transaction volumes.

Looking at its latest results, a total of $2.3trn (£1.8trn) moved through Mastercard’s payment network between April and June this year. And that’s up from $2.1trn (£1.7trn) just three months prior.

By charging small fees on each transaction, the company has bolstered its revenue and earnings by double-digits. And while it’s fiercely fighting for market share against the likes of Visa, Mastercard continues to consistently beat analyst expectations.

Future growth prospects are strongly tied to the Asian and African markets, which may be difficult to penetrate. Nevertheless, I remain optimistic about the long-term potential of this enterprise, and bought the shares recently.

Zaven Boyrazian owns shares in Mastercard.

Ramsdens Holdings

What it does: Ramsdens Holdings is a financial services group that offers foreign currency exchange, pawnbroking loans, and the buying and selling of jewellery.

By Ben McPoland. I’ve recently started a position in Ramsdens Holdings (LSE: RFX). This is a penny stock with a market capitalisation of just £70m, so high volatility is an unavoidable risk here.

Nevertheless, there are a number of things I like about this company. One is its diversified offerings, which range from jewellery retail and pawnbroking to foreign currency exchange.

Pawnbrokers tend to do well when consumer incomes come under pressure, and that’s no different during the current cost-of-living crisis. The firm is posting record revenue and operating profits across the full business.

Second, the stock carries a 4.3% dividend yield covered 2.5 times by trailing 12-months earnings. It just hiked the half-year dividend by 22%.  

Finally, the stock trades on a cheap P/E multiple of 9.2. That’s attractive because earnings growth is set to continue as Ramsdens adds to its 158 stores around the UK. Its online offering is also growing rapidly and the company intends to consolidate the highly fragmented market in which it is thriving.

Ben McPoland owns shares in Ramsdens Holdings.

Ten Entertainment

What it does: Ten Entertainment operates a network of bowling alleys around the UK, which also offer a range of other entertainment options.

By Roland Head. Ten Entertainment (LSE: TEG) has recovered strongly from the pandemic and recently reported half-year sales 57% above pre-Covid levels.

The business is continuing to expand and expects to open at least four new centres in 2023, taking its total estate to more than 50 centres.

The firm’s more recent accounts show attractive double-digit profit margins and strong cash generation. Ten Entertainment has no debt other than lease liabilities.

There’s obviously some risk of a slowdown in consumer demand if the UK suffers a recession. Growth could become a challenge, too — I don’t know how many more centres the firm will be able to open.

However, Ten Entertainment’s offering is relatively affordable and appeals to a broad market. The company’s shares look decent value to me too, trading on just nine times forecast earnings, with a 4.1% dividend yield.

I think the stock could deliver a decent return from current levels.

Roland Head owns shares in Ten Entertainment.

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Wound-care products

As a quick reminder, Advanced designs, develops, and manufactures advanced wound-care products for the healthcare market. It has a series of branded and non-branded products. Some products are designed for general use, while it also develops speciality products for surgical use too.

So what’s happening with the Advanced share price currently? Well, as I write, the shares are trading for 280p. At this time last year, the stock was trading for 284p, which is a 1% decline over a 12-month period. It is worth noting that the healthcare stock has pulled back 17% since the turn of the year, from 338p to current levels.

To buy or not to buy?

So what are the pros and cons of buying Advanced shares?

FOR: I like the look of Advanced’s business model and growth prospects. With its branded and non-branded revenue streams, it is able to make money from both divisions. Furthermore, it has a huge profile and presence and sells its products in over 80 countries. Elective surgeries took a major hit during the pandemic period but things have returned to normal. Advanced’s position as a leading wound-care product provider should be able to assist growth, boost performance, and in turn, any returns I would hope to make as an investor.

AGAINST: Current macroeconomic headwinds pose real risks for Advanced’s growth prospects and performance. Soaring inflation, the rising cost of raw materials, as well as the global supply chain crisis could have a material impact on the healthcare stock. Profit margins could be squeezed by rising costs and operations and sales could be affected by supply chain problems. My belief is that these issues are shorter term, and I invest for the long term.

FOR: I am buoyed by Advanced’s performance track record. I do understand that past performance is not a guarantee of the future. Looking back, I can see it has recorded consistent revenue and profit in the past four years. Most tellingly, however, I note that its 2021 performance was higher than pre-pandemic levels. This supports my theory that elective surgeries have returned to normal and Advanced’s growth prospects ahead look attractive.

AGAINST: One concern is the current valuation of Advanced shares. On a price-to-earnings ratio of just over 30, the shares look a tad expensive. Future growth may already be priced in. Furthermore, any bad news could make the share price tumble. I will keep a keen eye on developments.

A healthcare stock I would buy

Weighing up the pros and cons, the positives outweigh the negatives for me. For that reason, I would be willing to add Advanced Medical Solutions shares to my holdings. The firm’s profile, presence, and growth prospects look attractive to me. As a bonus, it pays a dividend too, which would likely boost my passive income stream.

The post Is this healthcare stock a no-brainer buy? appeared first on The Twelfth Magpie.

Here, I’m going to highlight two UK stocks trading under £5 that I’d be comfortable buying today. Both of these companies have momentum right now, and look poised to benefit from dominant long-term structural trends. 

A UK electric vehicle stock

The first stock I want to highlight is Volex (LSE: VLX). It’s an under-the-radar UK manufacturing company that specialises in products that provide power and connectivity for both everyday items and complex machinery.

Its products, which include power cords and cables, are used in a number of high-growth markets including the electric vehicle (EV) and data centre industries.

Half-year results from Volex earlier this month showed the company is growing rapidly right now. For the 26 weeks to 3 October, revenue was up 45% year-on-year to $293m, while underlying operating profit was up 31% to $27.3m.

One highlight of the results was EV market sales, which were up 210% to $45m. Basic earnings per share came in at $0.11, up 8% year-on-year.

“With excellent long-term prospects from organic growth and acquisitions, we are confident in our strategy, our operating model and our ability to create further shareholder value,” said chairman Nat Rothschild.

However, the market was unimpressed with these H1 results, due to the fact that the company mentioned it’s investing for growth. This spooked investors and pushed the share price down.

And I see this pullback as a buying opportunity as the forward-looking P/E ratio is now in the low 20s. That’s an attractive valuation, in my view, given the growth here.

Of course, there are risks to consider. One is supply chain issues, which are impacting a lot of manufacturing companies right now. Another is competition from rivals.

Overall, however, I think this stock offers a nice risk/reward proposition right now.

A top stock under £5

Another UK stock under £5 I like the look of right now is Advanced Medical Solutions (LSE: AMS). It’s a leading developer and manufacturer of advanced wound care and surgical products. Its products, which are marketed under a range of brand names, are sold in nearly 80 countries worldwide.

Like many healthcare companies, AMS saw its revenues dip during Covid due to the fact that many elective medical procedures were cancelled. However, the company now appears to be making a strong recovery. Indeed, in its half-year results for the six months ended 30 June, the group posted revenue of £50.2m, up 28% year-on-year, and profit before tax jumped 133% year-on-year to £12.4m.

Looking ahead, I see a lot of growth potential here. In the short term, the company should benefit from  elective surgery backlogs that have built up globally over the last 18 months. Meanwhile, in the long run, it should benefit from the world’s ageing population, which is likely to drive demand for wound care products higher.

One risk here is the stock’s valuation. Currently, the forward-looking P/E ratio using next year’s earnings forecast (10.4p per share) is in the low 30s. This valuation doesn’t leave a huge margin of safety. If future growth is disappointing, the stock could take a hit.

But I’m comfortable with this valuation. That’s because I think this company can generate significant growth in the years ahead.

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A cheap UK medical share

I think spending on some choice healthcare shares could be a good idea. Many medical companies have suffered a torrid time over the past year as the pandemic has shattered the number of elective surgical procedures being carried out.

However, I think the long-term outlook for the sector remains extremely bright. In particular, soaring healthcare spending in developing markets provides plenty of opportunities for businesses.

Advanced Medical Solutions Group (LSE: AMS) is a cheap UK share I’m expecting to thrive. This company manufactures a range of wound treatment products that help repair, manage and close up damaged and cut tissue during and after surgery.

Its highly-developed technologies have made it one of the largest operators on the planet. Pleasingly, AMS has plenty of capital with which to continue developing cutting-edge treatments too.

It had more than £61m worth of cash on the balance sheet as of June, thanks to rebounding end markets in the first half of 2021. I’d buy this share despite the possibility that a surge in Covid-19 cases could put an end to its recent rebound. Revenues here jumped 28% year-on-year in the first half.

A FTSE 100 growth and dividend share

The FTSE 100 is packed with top-quality, low-cost shares for me to buy as well. One that’s attracting me with its exceptional value today is banking colossus HSBC Holdings (LSE: HSBA). This blue-chip stock trades on an ultra-low forward price-to-earnings (P/E) ratio of 9.4 times. It also carries an index-beating 4.8% dividend yield.

I think HSBC’s a great buy because of its focus on fast-growing Asian markets. In the short term, this could prove problematic as the recovery from Covid-19 is tipped to be slower in emerging regions like this. But, over a longer-term time horizon, I think this could pay off handsomely.

Economic growth in Asia is tipped to remain much stronger than in developed countries in the post-pandemic environment. This, allied with the low penetration of banking in many of the places where HSBC operates, could help deliver some monumental returns.

Analysts at McKinsey Company think total banking revenue pools in the region will grow between 7% and 8% per year over the next five years.

Sure, HSBC faces intense competition from smaller, more agile digital-led challenger banks in Asia. However, the bank has one of the industry’s most trusted brands.That’s something I feel could give it an edge against these new kids on the block.

The business is also investing heavily in its own digital operations. I think this could also could help me make a lot of cash over the next 10 years.

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The business is a developer and manufacturer of surgical and wound care products. These range from tissue adhesives to wound dressings sold under multiple globally recognised brands. With lockdowns keeping people at home, A&E visits have dropped by almost half. Furthermore, with hospitals overwhelmed by Covid-19 patients, many elective surgeries have been delayed by a similar rate.

Combined, this had led to a significant decline in product sales. But now that the vaccine rollout is underway, is the tide about to change? Is this pharma stock about to make a comeback in 2021? And should I consider adding it to my portfolio? 

A pioneer in wound care

AMS has been around since the early 1990s. It was initially a research and development firm. But skip forward a few decades and a couple acquisitions, and the pharma stock has become a leader within its market space.

The business can be broken up into two units. Unit one is called Surgical. It sells AMS branded products to medical centres – such as hospitals – directly or through third-party distributors. The second unit is called Woundcare. This division develops and supplies a wide range of products to its business partners, who subsequently use them to create their own branded products.

Both segments are responsible for generating a roughly even split of total revenue. However, the Surgical unit appears to be significantly more profitable, with an operating margin of 34% in 2019.

As previously stated, Covid-19 has had a major impact on this stock. While its manufacturing facilities remained in operation throughout 2020, general demand for the firm’s products fell sharply. As a result, forecast revenue for 2020 is expected to be around 20% lower than in 2019.

However, the catalyst behind this poor performance looks only temporary to me. And with Covid-19 slowly coming under control, I believe that demand can return and even grow in the latter part of 2021. But as always, there are plenty of challenges and risks ahead.

A fiercely competitive market

Wound care and surgical are highly competitive spaces. While regulators make it difficult for new entrants, the number of global competitors for the company continues to rise.

As such, the need to continually innovate and expand its intellectual property portfolio is exceptionally high. But this might begin straining the company’s financials.

Fortunately, there’s a large proportion of cash on the balance sheet that has proven vital to continue funding its R&D department throughout the pandemic. However, should the business make another acquisition, this cash balance may no longer be available to rely on if another similar event were to occur.

Is the pharma stock on my buy list?

AMS looks perfectly positioned for a rebound in my eyes. Assuming that demand returns to pre-Covid levels later this year, the current stock price seems relatively low. The fierce competition will continue to be an ever-present threat, but the potential reward might just outweigh the risk.

Therefore I think the stock could be a fantastic opportunity for value investors, and perhaps even my portfolio as well.

The post Is this pharma stock about to bounce back in 2021? appeared first on The Twelfth Magpie.

At the moment, with the Covid-19 pandemic still ongoing, and Brexit just around the corner, risks for small-cap stocks, in particular, are high. However, I am willing to accept the risks and have a long enough time horizon to ride out any rough patches. With that in mind, here are two UK small-cap stocks that I would consider buying for December 2020 and beyond.

A small-cap healthcare stock

Hospitals have performed fewer surgeries and procedures this year. For a surgical and advanced wound care small-cap stock like Advanced Medical Solutions (LSE: AMS), this is bad news. Half-year 2020 revenue and profit before tax both declined, by 19% and 62% year-on-year respectively. But things are already getting better in most of the markets the company serves. The recent vaccine developments are encouraging and could potentially end the pandemic sometime next year. Hospitals returning to normal working conditions is a boon for AMS’s sales and bottom line.

Recent developments include two product approvals in India, patents granted in the UK and US for an advanced dressing, and a CE mark being awarded for another. Just yesterday, AMS completed the £22m cash acquisition of a wound care and bio-diagnostics coating business, that was also a key supplier. 

These developments position AMS well for making the most of a recovery in surgical caseloads. Also, shopping for acquisitions and increasing R&D investment to £3.8m this year speaks volumes about AMS’s financial health and management confidence in the medium- and long-term prospects for this UK small-cap stock.

An AIM technology stock

Quartix Holdings (LSE: QTX) is one of Europe’s leading suppliers of subscription-based vehicle tracking systems, software, and services. In January 2020 the company picked up 555 new customers. Then, the Covid-19 pandemic knocked customer acquisition levels down to 200. However, 474 customers were added in September this year, meaning the impact was not as dramatic nor as long-lasting as once feared. All in all, across all markets served, the number of vehicles using Quartix’s products and services have increased so far this year. However, Quartix’s insurance telematics business, which relies heavily on newly insured drivers, slumped, but it does represent only 16% of total revenue.

I think UK small-cap stock Quartix has a lot going for it. Quartix’s customers have had the company’s tracking equipment installed on their vehicles and have learnt how to use its software. Switching to another product is expensive and time-consuming. This suggests customers will stick around. Those customers pay subscriptions for continuing use after installation. Recurring, predictable revenue is great for a growing company.

And Quartix does look good for continued growth. Its customers tend to be owners of fleets of cars and vans. Quartix gives them the ability to locate their vehicles 24/7, make scheduling of deliveries easier, check millage, and report driver locations to their customers. Quartix provides an essential service for customers looking to improve their fleet management. The increase in online delivery is just one trend that is increasing the need for fleet management.

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But Advanced Medical Solutions (LSE: AMS) is down by 10% today as I write on the release of its half-year report. And that follows at least five years of rising revenue, earnings and shareholder dividends that powered a 110% increase in the share price over the period, even after deducting today’s fall.

A strong trading niche

The company describes itself as “world-leading” developer and manufacturer of “innovative and technologically advanced” products for the global advanced wound care, surgical and wound closure markets. In today’s world, that sounds to me like a great business to be in, but today’s report reveals to us something of a stall in the growth figures, although the directors believe the situation is temporary.

While constant currency revenue in the first six months of the year rose 1% compared to the equivalent period last year, adjusted diluted earnings per share slipped back by 3% and adjusted net cash from operations fell by 12%. Yet undeterred, the directors pushed up the interim dividend by 19%, suggesting their optimism about the immediate outlook for trading.

The hiatus in overall profit growth seems to have been caused by the company’s planned investment in research & development (R&D) and a previously flagged slowdown in US sales of the wound adhesive product Liquibrand, which fell by 27%. But chief executive Chris Meredith said in the report the firm expects US sales to recover next year. Meanwhile, sales of other products in the US and other geographies actually grew by 10% overall, suggesting that the firm’s general growth trajectory remains intact.

Temporary challenges

The company puts down its problems in the US to customer de-stocking, competitor activity and “delayed” product launches. I’m optimistic that these challenges will indeed prove to be temporary and today’s plunge in the share price will turn out to be a decent opportunity to buy some of the company’s shares at a discount.

But we need a discount if we can get it because the growth story here has not gone unnoticed by the investing community. Even at today’s share price close to 251p after the fall-back, the forward-looking earnings multiple for 2020 sits just above 22. That compares to City analysts’ expectations of an advance in earnings that year between 7% and 8%. Indeed, the valuation seems quite rich, but I see that as a mark of quality in this case.

Nonetheless, when valuations are high, we often see corrections in share prices like this on any slightly less-than-positive news, as today with AMS. Yet, in this case, the directors expressed their optimism about the firm’s medium- and long-term prospects, so I see the shares as attractive and would be tempted to buy a few on dips and down-days.

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For long-term investors, there could be recovery potential on offer. BP seems to offer a wide margin of safety, as well as a sound overall strategy. Therefore, alongside another turnaround stock which released a trading update on Tuesday, it could be worth a closer look.

Growth potential

The second company in question is surgical and advanced woundcare specialist Advanced Medical Solutions (LSE: AMS). It released a brief update which stated that trading for the year to 31 December is expected to be in line with plan. The company has been able to make good progress with the delivery of its strategy, with its growth rate supported by innovative product development.

Looking ahead, it’s expected to report a rise in earnings of over 9% in the next financial year. This suggests its strategy is sound and that its operating environment remains robust. Earnings growth has, of course, become the norm for the stock. In the last half-decade, it’s been able to increase its bottom line in every year, rising at an annualised rate of 12%.

Given the uncertain prospects for the UK and world economies, companies that are able to offer relatively robust financial prospects, such as Advanced Medical Solutions, could become increasingly popular. Therefore, following its share price decline of 25% in the last four months, it could offer long-term investment potential, in my opinion.

Recovery prospects

As mentioned, the BP share price has experienced a challenging period. The oil price has been a key driver behind weakness across the energy sector, with the price of Brent falling by $28 since early October. This has eradicated all of the gains made between the latter part of 2017 and October, and could mean that investors become increasingly concerned about the outlook for a number of oil and gas companies.

In such a scenario, it could be prudent to focus on larger stocks which may have stronger balance sheets and greater diversity. They may be hit less hard by further falls in the oil price, while also offering margins of safety, which suggest that successful turnarounds could be ahead. Although BP has experienced financial difficulty in the past, it appears to have a strong asset base and improving financial outlook.

Following its share price fall, the company trades on a price-to-earnings (P/E) ratio of around 11.8. This suggests that it may offer good value for money. As with any falling asset, there could be further declines ahead. But in the long run, today’s price seems attractive, in my opinion.

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