Therefore, buying stocks after the recent fall could be a wise move. They may offer greater volatility than expected, but their margins of safety now appear to be relatively wide. With that in mind, here are two stocks that could be worth a closer look today.

Improving outlook

Reporting on Monday was regenerative medical devices company Tissue Regenix (LSE: TRX). The performance of the business in 2017 was relatively encouraging, with its revenue increasing more than three-fold to £5.2m. It was able to launch additional product lines, addressing surgical reconstructive procedures and dental applications.

The company’s £40m equity fundraise was successful and it was able to complete the acquisition of CellRight Technologies in August 2017. This has the potential to boost its financial performance over the medium term, with the stock expected to move into profitability in the next financial year. This follows a long period of lossmaking and could help to improve investor sentiment.

Although Tissue Regenix trades on a forward price-to-earnings (P/E) ratio of around 60, the company could deliver earnings growth in future years. It is entering a new phase of commercialisation which could produce a step-change in financial performance. As such, the company could prove to be a strong performer within what remains a relatively enticing wider healthcare industry.

Growth potential

Also offering upbeat investment potential is Hikma Pharmaceuticals (LSE: HIK). The company is in the midst of a challenging period which has seen its bottom line decline in each of the last three years. This has contributed to a fall in its share price of 45% in the last year. And with it due to report a further decline in its bottom line of 11% in the current year, its short-term performance could be somewhat disappointing.

However, over the medium term the company could experience an improvement in its share price performance. It is forecast to report a rise in earnings of 14% in the next financial year and this may lead to a change in investor sentiment. Since Hikma has a price-to-earnings growth (PEG) ratio of just 1.1, there seems to be significant upside potential on offer. As such, it could prove to be a strong turnaround play.

The healthcare industry could become increasingly popular in future. If the wider stock market remains volatile then investors may seek stocks that could offer lower positive correlation with the index. As such, buying Hikma right now could be a profitable move over the long run, while providing some protection against share price falls in the short run.

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Feeding China’s growing appetite

While fertiliser may seem like a fairly boring product to many, when you consider its role in feeding the global population, the picture begins to look interesting. Indeed, China’s 1.4bn people are building up a considerable appetite, and the only way that we’ll be able to feed these people, along with the growing populations of Asia, Africa and South America, will be to enhance the output from farmland. That’s where high-grade fertiliser, such as Sirius’s key product POLY4 could play a role.

Having said that, looking at the investment case, I won’t be buying shares in the company just yet. The project is still very much in its early stages and first production is not due to start until 2021. That means that, despite having a market capitalisation of £1.15bn, as of now, the company has no revenues and no profits.

I don’t mind adding exciting smaller companies to my portfolio occasionally, but having been burnt in the past from ‘story’ stocks, these days I seek out companies that are actually profitable. While I may occasionally miss out on some big gains, I’ve found this strategy results in fewer sizeable losses. Sirius could go on to be a wonderful investment for long-term investors, but for now, I’m happy to sit on the sidelines.

$6.5bn global market 

Another small-cap stock that I won’t be investing in is £108m market cap Tissue Regenix (LSE: TRX). Tissue Regenix specialises in regenerative medicine – engineering human and animal tissue that can be used to repair diseased or worn out body parts. The company is developing and commercialising a range of medical devices and treatments based on its patented dCELL process.

The size of the regenerative medical devices market is significant. Indeed, according to the company, the global market is expected to be worth $6.5bn by 2019. That makes the long-term story here intriguing, in my view. Having said that, I won’t be investing.

Tissue Regenix is one step ahead of Sirius Minerals in that it is generating sales. For the six month period to 30 June, the company generated revenue of $1.4m. However, during the period, the business also ran up administrative expenses of $6.3m, resulting in an operating loss of $5.4m. While City analysts expect revenue to pick up considerably this year and next, net losses of $12.2 and $8.7m are expected.

Tissue Regenix’s shares appear to be locked in a long-term downtrend at present, having fallen from around 30p in early 2014, to just 9p today. That can happen when profits fail to materialise. As such, I won’t be buying shares in Tissue Regenix for now. 

The post Why I’m not buying shares in Sirius Minerals plc just yet appeared first on The Twelfth Magpie.

Hedge fund attack

FTSE 250 firm Allied Minds (LSE: ALM) commercialises intellectual property coming out of US universities and government research labs, supporting its portfolio of businesses with capital, central management and shared services.

Woodford has bought a number of tranches of shares in Allied over the years, including in May 2015 when they were trading at around 600p (giving the company a market capitlisation of £1.3bn). The Woodford website published a bullish blog post on the company just prior to this purchase.

In September 2015, when the shares were 499p (market cap £1.1bn), Allied was attacked in a scathing report by New York hedge fund Kerrisdale Capital as “a dressed-up collection of high-risk, low-reward gambles that we believe has at least 70% downside.”

Woodford was unconcerned by the report and has continued to support Allied with further investment. The shares are currently 367p (market cap £794m). The Kerrisdale analysis has its flaws, but some of the issues it raised have left me uneasy. I’d suggest investors need to satisfy themselves that there’s no merit in Kerrisdale’s arguments before considering an investment in Allied.

Pipeline setback

Woodford more than doubled his stake in Circassia Pharmaceuticals (LSE: CIR) by participating in a fundraising at 288p (market cap £820m) in June 2015.

A year later, Circassia’s shares crashed on the failure of a phase III study of its flagship cat allergy vaccine. This led the company to put the development of its allergy portfolio on hold while awaiting results of a phase III study of its other advanced allergy vaccine — for house dust mites — in spring 2017.

Woodford posted his response to the disappointment, highlighting that Circassia has other “very attractive respiratory products both in the market and under development”, that it “remains very well-financed” and saying “we remain supportive shareholders and from here, we continue to see long-term value in the shares”.

Circassia was demoted from the FTSE 250 to the SmallCap index in September and its shares are currently trading at 84p (market cap £239m), which is 6.6 times forecast revenue for 2017. I’m inclined to think it wise to wait for the upcoming results of the house dust mites vaccine study before considering an investment here.

Speculative buy

Regenerative medical devices company Tissue Regenix (LSE: TRX) has neither come under attack by a hedge fund nor suffered a major pipeline setback. Woodford bought a big slug of shares in this AIM-listed company two years ago when they were trading at around 23p (market cap £150m). You can pick them up today at 17p (market cap £129m), so a 26% discount on share price and a 14% discount on market cap.

The company is valued at 7.7 times forecast revenue for 2017 and with another encouraging product update this morning, including prospects for rapid commercialisation, there is plenty of scope for upward revisions of analyst revenue forecasts in the coming year and beyond. Based on the quality of its products and the size of its potential markets, I rate Tissue Regenix as one of the more promising higher risk, speculative buys around today.

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Tissue Regenix’s sales of £631,000 in the first half of the year is a 150% increase on the £252,000 sales recorded in the first half of the prior year. This was mainly due to its continued focus on adoption and advocacy, which was rewarded with further Medicare approvals. This strategy also delivered Tissue Regenix’s first group Purchasing Order agreement, which is a significant step to enable the continued success of its DermaPure brand.

The agreement also highlights the growing commercial traction that Tissue Regenix has in the US wound care market. This is a competitive space, but the company has been able to make gains in this arena.

Tissue Regenix has also made progress with its European market entry. It expects to be in a position to launch its first orthopaedic product, OrthoPure XT, in the first half of 2017. The CE mark is due to be made around six months ahead of plan.

Lower risk

Tissue Regenix remains on track to meet its year-end targets. However, despite a major rise in revenue, it’s forecast to remain lossmaking in both the current year and next year. This could cause many investors to be put off despite its long-term growth potential. As such, investing in a highly profitable and lower risk healthcare stock such as GlaxoSmithKline (LSE: GSK) may prove to be a better move.

After all, GlaxoSmithKline offers a potent mix of income, value and growth potential. For example, it currently yields 4.7% from a dividend that’s forecast to be covered 1.3 times in the next financial year. This shows that there’s scope for brisk dividend gains over the medium term. Similarly, GlaxoSmithKline’s valuation could increase thanks to an upward rerating. It currently trades on a price-to-earnings (P/E) ratio of 17.8. Given its low positive correlation with the wider economy and relatively low risk profile, this rating could increase as investors seek out more defensive stocks in the post-Brexit vote world in which we now live.

Looking ahead, GlaxoSmithKline is forecast to grow its bottom line by 27% this year and by a further 7% next year. This could positively catalyse investor sentiment in the stock. And beyond 2017, the firm’s pipeline has the potential to boost earnings yet further. In particular, its ViiV Healthcare division holds great promise, while its consumer goods business could benefit from rising demand for consumables across the emerging world.

While Tissue Regenix is performing well and making progress, its risk/reward ratio is inferior to that of GlaxoSmithKline. Therefore, the latter is the better buy right now.

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Attractive buy

The company has come through a phase of expiring patents, which has temporarily reined-in revenue and profits, but ageing populations in the developed world and rising demand in emerging markets remain long-term drivers for growth. Glaxo is well positioned to benefit, with its four divisions of pharmaceuticals, consumer health products, vaccines and HIV medicines.

The company is set to put the recent lacklustre period behind it with a return to revenue growth this year. City analysts forecast an earnings rise of 15%, and this is expected to be just the start of a new growth trajectory. As such, Glaxo appears an attractive buy at a current share price of 1,436p on a price-to-earnings ratio of 16.4 and with a dividend yield of 5.6%.

Commersialisation underway

Tissue Regenix (LSE: TRX) has a patented technology that decellurises animal and human tissue, leaving a “tissue scaffold which is not rejected by the patient’s body and can then be used to repair diseased or worn out body parts”.

In its annual results released this morning, the company reported revenue of £0.8m in the first year of commercialisation of its flagship wound care product, and good clinical progress on orthopaedic and heart-valve products. Revenue is set to rise rapidly, with analysts having pencilled-in uplifts to over £3m, followed by over £10m.

As expected, Tissue Regenix reported a £10m pre-tax loss for the year just gone, reflecting its investment in commercial infrastructure and clinical trials. However, with year-end cash of £19.9m and rising revenues, the financial position of the company is strong.

With the shares modestly lower in early trading, Tissue Regenix is valued at £131m. However, the size of the regenerative medical devices market is huge and with the commercial potential of the company’s products starting to be realised, the business could come to be worth a multiple of its present value. As such, it could prove a good buy for investors looking for a higher risk/higher reward opportunity.

A speculative investment

Optibiotix Health (LSE: OPTI) is behind Tissue Regenix on the road to commercialisation, but like the regenerative tissue company, it has genuine and valuable intellectual property. In Optibiotix’s case, this is centred on tackling obesity, high cholesterol and diabetes with patented compounds that change the way microbes in the body work and interact.

Optibiotix may have no commercial revenues at this stage, but a number of joint development, cost-sharing and option agreements are in place, including with Slimfast and an unnamed “multinational consumer goods company”.

At a current share price of 80p, Optibiotix is valued at £62m. At this stage of its development, Optibiotix remains a speculative investment for those with a high tolerance for risk, but big business is clearly interested in the company’s technology and the potential markets are huge. These markets were further extend just last week when Optibiotix filed a new patent for microbial proteins with the potential to tackle hospital superbugs such as MRSA.

The post Are GlaxoSmithKline plc, Tissue Regenix Group plc and Optibiotix Health plc must-have health stocks? appeared first on The Twelfth Magpie.

What’s more, the shares of all three companies look very buyable at their current levels.

AstraZeneca

Big pharma firm AstraZeneca is a £53bn FTSE 100 giant. The company has seen earnings decline over the past few years, as patents have expired on some of its money-spinning products; not helped by previous management’s lack of clear vision.

However, under chief executive Pascal Soriot — poached from Swiss powerhouse Roche in 2012 — Astra’s research has been reinvigorated, and the company has focused down to selected areas, including cancer, and cardiovascular and respiratory diseases.

Newsflow has been largely positive, and the decline in earnings is beginning to bottom out. Nevertheless, Astra’s shares are currently 23% lower than a 5,500p a share takeover approach made by US giant Pfizer last year — an approach rejected by Astra’s board as undervaluing the company.

Astra offers an above-average dividend yield of 4.3%. The dividend hasn’t increased in recent years, and isn’t expected to for a couple more yet, but it shouldn’t be too long before the market starts looking ahead to the prospect of a return to earnings and dividend growth. So, the opportunity to buy a slice of a solid, defensive blue chip, on a good starting yield, ahead of improving sentiment, appears attractive.

Dechra Pharmaceuticals

You might think from the name that Dechra Pharmaceuticals is in the same business as Astra. However, Dechra’s market is very different. This £825m FTSE 250 firm is a specialist in veterinary pharmaceuticals.

Dechra, which released its annual results today, is growing strongly; both organically and by acquisitions. For its financial year ended 30 June, the company reported top line growth of 10% and underlying earnings growth of 17% (both at constant exchange rates). Since the year end, Dechra has announced a takeover offer for Croatian firm Genera, which will give Dechra exposure to the fast-growing vaccines market and a lower-cost manufacturing base.

Dechra is trading at 23 times the annual earnings reported today, which is higher than the average FTSE 250 firm. However, this is a fast-growing firm with excellent prospects, and the shares are currently 12% off their highs of earlier this year. A 10% increase in the annual dividend announced today adds a modest yield of 1.8%, which can be usefully reinvested to compound growth.

Tissue Regenix

Tissue Regenix is a very different business again. This £140m AIM-listed company could be described as a “blue-sky” bet. However, I believe Tissue Regenix’s prospects are much superior to many stocks of a blue-sky nature.

For one thing, the company has genuine and valuable intellectual property: namely, patented decellularisation technology, which “removes DNA and other cellular material from animal and human tissue leaving an acellular tissue scaffold which is not rejected by the patient’s body and can then be used to repair diseased or worn out body parts”. For another thing, Tissue Regenix is rapidly commercialising its lead product into the US acute care chronic wound market. Early revenues are expected to start flowing next year, and other products are in advanced stages of development. Finally, it might be added that renowned fund manager Neil Woodford has a 15% stake in the company.

Tissue Regenix, then, is a smaller company with high growth potential (paying no dividend), which could provide a turbo boost alongside mature AstraZeneca and growth-and-income mid-cap Dechra.

The post Why AstraZeneca plc, Dechra Pharmaceuticals plc And Tissue Regenix Group PLC Are A Perfect Healthcare Combination appeared first on The Twelfth Magpie.

The master investor’s new venture, the CF Woodford Equity Income Fund, which launches on 2 June, will be managed very much along the same lines. And that means up to 7% of the fund will be in small, early-stage businesses.

Run-of-the-mill fund managers would consider such investments risky. But Woodford claims he’s had only one disaster in this area in the last 10 years and “many, many” successes.

Brit tech champion

Woodford has a passion for British science. He was quoted in the Guardian as saying:

“No other country matches Britain in its track record of scientific discovery … We do science and innovation incredibly well, but we have a lamentable record in converting top science into top businesses”.

Woodford’s interest in supporting start-up businesses coming out of British universities and research centres isn’t driven by a sentimental patriotism. Rather, he sees himself as being presented with “incredible opportunities”, due to under-funding in the area.

Speaking to What Investment earlier this month, Woodford said:

“While changing [under-funding] is socially useful, I do want a return. I am not in this for totally altruistic reasons. The demand for capital is high, but the supply of capital is very low, and you don’t need more than an O-Level in economics to understand that in those circumstances there is a lot of value to be had for investors”.

3 companies that fit the bill

Tissue Regenix Group (LSE: TRX) was formed in 2006 when it was spun-out from the University of Leeds. The group’s patented regenerative technology enables animal and human tissue to be used to repair diseased or worn out body parts in areas such as vascular disease, heart valve replacement and knee repair.

The AIM-listed group made an operating loss of £6.6m last year, but still has a cash pile of £18.5m to accelerate its commercial roll-out programme.

Imperial Innovations Group (LSE: IVO) was founded in 1986 and listed on AIM in 2006. Imperial is an investment company that provides capital and other assistance for businesses founded on research coming out of Imperial College London, University College London, Cambridge University and Oxford University.

Imperial has interests in over 30 such businesses, focused on therapeutics, medtech and medical devices, engineering, and information & communications technology. The group has a market capitalisation of £395m and net assets of £255m. The book value of 1.5x doesn’t look glaringly expensive given the potential for substantial uplifts in the value of the underlying holdings.

IP Group (LSE: IPO), founded in 2001, is similar to Imperial Innovations, but is rather larger, being a member of the FTSE 250, and having holdings in no fewer than 87 businesses. IP also draws on a much wider range of universities — all across the UK and as far afield as Princeton in the US — but, like Imperial, focuses on techie sectors: energy & renewables, healthcare, biotech, information & communications technology and chemicals & materials.

The group has a market capitalisation of £861m and net assets of £530m. The book value of 1.6x again doesn’t look extortionate.

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