Why I’ve Shunned GlaxoSmithKline plc & AstraZeneca plc But Bought Bioventix plc & Tristel plc

Why this Fool prefers Tristel plc (LON: TSTL) and Bioventix plc (LON: BVXP) over sector heavyweights GlaxoSmithKline plc (LON: GSK) and Astrazeneca plc (LON: AZN).

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

There’s no doubt about it: investors have had a torrid time of late, with the FTSE 100 slipping from breaching new highs in April, only to sink below the psychologically important sub-6,000 mark on a number of occasions during August and September.

Whilst several sectors have suffered owing to weakness in the price of oil and several other commodities, it has also been notable that several large companies in the Healthcare sector have also been out of favour.

What goes down…

… must go up – at least that would be the expectation of some contrarian investors. However, that has not been the case to date, at least for shares in mega-caps GlaxoSmithKline (LSE: GSK) and AstraZeneca (LSE: AZN), as some investors have taken flight on short-term fears that both business are losing market share in the United States and Europe, coupled with fears about Hillary Clinton’s plans to cap drug prices in the US to prevent so-called “price-gouging”, should she become president.

Additionally, some fund managers have voiced concerns that the dividend is under threat. Brokers are currently forecasting that the full-year payout from GlaxoSmithKline (expected to be at least 80p) will not be fully covered by earnings this year, whilst AstraZeneca seems manageable at around 1.5 times cover.

While one could argue that both management teams should focus on reducing debt, investors should also note that these are two quality businesses that should be able to weather almost anything the market throws at them, and whilst I don’t think that they’ll shoot the lights out in terms of growth, I do think prospective investors could benefit over the long term.

Going for growth and income

So, why have I shunned these wonderfully liquid FTSE big boys? Well, the answer is rather straightforward. I like growth companies and growing income – you could say having my cake and eating it!

And that is what we have got (so far at least) with Bioventix (LSE: BVXP) and Tristel (LSE: TSTL). With sub-£100m market caps, these are on the small side, tightly held and, should things not go to plan, be rather difficult to sell… consider yourself warned!

That said, these companies occupy the number 1 and 3 spot in my portfolio, and I think that both management teams can continue to grow the businesses for many years to come.

Looking at Bioventix, the company is engaged in the development and supply of antibodies: a biotechnology company specialising in the development of high-affinity (very accurate) sheep monoclonal antibodies (SMAs) for use in immunodiagnostics.

The company recently released strong, expectation-beating results. Revenue increased by 23% whilst profit increased by 39% — management topped that off with a 50% rise in the final dividend and promised a similar increase in next year’s interim dividend given the good earnings visibility going forward. It is rare to see these sort of numbers from FTSE 100 firms these days.

Management (which owns a significant chunk of the company) also updated the market on the prospects regarding a potentially transformational test, following a partnership with a large multinational diagnostics company on a project that tests for troponin levels, which are elevated following a heart attack. Bioventix says that it is optimistic that the project is nearing the point of commercialisation if the partner company can receive marketing approval in Europe and the US.

Not to be outdone, Tristel — a company engaged in the manufacturing of infection control, contamination control and hygiene products — released its own set of expectation-beating results. Revenues increased by 14%, pre-tax profits rose by 44% and the final dividend was raised by a stonking 69%! No small act, especially given that the company also paid a 3p per share special dividend in August of this year.

Added to the mix was an extremely bullish chairman (who owns over 20% of the company), who seemed very confident of growth internationally and announced that the company was seeking regulatory approval to sell its products into the United States. If approved, the potential sales could almost double earnings per share going forward.

As we can see from the chart below, the market has been rather impressed with the results, driving the share price to new highs, whilst Astra and Glaxo have underperformed a rather weak FTSE 100.

The Foolish Bottom Line

Whilst it is always pleasing to see smaller companies outperform the wider market, both in growing earnings and the dividend (especially when they form part of your portfolio), investors should remember to tread carefully and not put all of their ‘eggs in one basket’.

Not many companies grow in a straight line and it pays to diversify, especially if you are reliant on the income.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Dave Sullivan owns shares in Bioventix and Tristel. The Motley Fool UK has recommended GlaxoSmithKline. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Young Asian man drinking coffee at home and looking at his phone
Investing Articles

Is Rolls-Royce’s share price an irresistible bargain?

Is Rolls-Royce's share price the FTSE 100's greatest bargain today? Royston Wild explains why he would -- and wouldn't --…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

Is the Vodafone share price a wonderful bargain or a horrible value trap?

As the Vodafone share price continues to fall, is it now a stock to buy with a view to a…

Read more »

Hand of a mature man opening a safety deposit box.
Investing Articles

I’d buy 95,239 shares of this banking stock to generate £200 of monthly passive income

Muhammad Cheema takes a look at how Lloyds shares, with a dividend yield of 5.9%, can generate a healthy monthly…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

Can FY results give the Antofagasta share price a long-term boost?

The Antofagasta share price has had a good five years. Now the company says it's set to enter a new…

Read more »

Person holding magnifying glass over important document, reading the small print
Dividend Shares

Can I make sustainable passive income from share buybacks?

Jon Smith notes the rise in share buybacks from FTSE 100 companies, but flags up why they aren't great for…

Read more »

Front view of a mixed-race couple walking past a shop window and looking in.
Investing Articles

After the Currys share price rockets, here are more potential UK takeover targets!

The Currys share price has surged 39% higher in response to news of a takeover bid. Which UK stocks could…

Read more »

Investing Articles

Down 25%, where will the British American Tobacco share price go next?

The British American Tobacco share price has taken a hit. But this Fool isn't deterred. He think's now could be…

Read more »

Young black colleagues high-fiving each other at work
Investing Articles

2 cheap dividend stocks I’d snap up in a heartbeat!

This Fool is on the look out for quality dividend stocks and earmarks these two firms as great options to…

Read more »