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.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

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 mixed-race couple sat on the beach looking out over the sea
Investing Articles

I’d put £20K in an ISA now to target a £1,900 monthly second income in future!

Christopher Ruane shares why he thinks a long-term approach to investing and careful selection of shares could help him build…

Read more »

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »

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

The market is wrong about this FTSE 250 stock. I’m buying it in April

Stephen Wright thinks investors should look past a 49% decline in earnings per share and consider investing in a FTSE…

Read more »