I think 2024 could be the year of the mid-cap stock. As we close in on a new UK financial year, there’s one FTSE 250 stock in the healthcare sector that I am looking to buy this month.
This index represents companies ranked 101-350 by market capitalisation on the London Stock Exchange. It’s a diverse group, with a combined market value of over £320bn for savvy investors to go hunting in.
Where I’d spend my cash in April
My current favourite pick is in the biotechnology space. The company is PureTech Health (LSE: PRTC), a clinical-stage biotherapeutics group that develops medicines to fight serious diseases.
PureTech has developed 28 therapeutics and therapeutic candidates to date, focused on weight management, cognitive disorders, alopecia and more.
I first added PureTech to my watchlist back in October when it hit a 52-week low of 139p. Since then, the company’s share price has rebounded to 219p including a 6.0% gain in last Monday’s trade.
The biotechnology industry can be tricky to navigate for us stock pickers. While the potential rewards can be there for the right treatment, clinical trials incur steep, upfront research and development (R&D) costs, with uncertain success rates and significant regulatory risk.
That brings me to another reason why I’m looking to buy this FTSE 250 stock in April over other biotech names. Not only does PureTech continue to innovate with its R&D engine, but it has brought two candidates through both US FDA and European marketing approval.
The company is set for a busy couple of months with its anticipated results release this month, and a capital return project on the go.
PureTech plans to return $100m via a tender offer in the latest shareholder-friendly action from the company. That’s a fair chunk of change relative to the company’s £583m market capitalisation.
The recent $14bn sale of the PureTech-founded Karuna Therapeutics to Bristol Myers Squibb has been the catalyst for this latest payout to shareholders.
I see two positives from the Karuna transaction and subsequent payout. Firstly, this represents a successful ‘cradle to grave’ investment from PureTech as a “Founded Entity”. Secondly, I see the proposed capital return a sign that management are using excess cash to benefit shareholders.
Some investors may want to see more reinvestment from these biotech companies to fuel further growth. That is a valid point, but I think the staged nature of clinical trials make cash management an important part of being competitive in the marketplace.
Another thing that gives me peace of mind is a recent update . On 20 December 2023, the company said that it has £320m in cash and equivalents, giving it an “operational runway” until 2027.
Management noted PureTech’s “robust” balance sheet and I think it is comfortable with future liquidity needs. That means this is an opportunity to give shareholders some cash back in their pockets after the recent successful sale.
My time to buy
PureTech appears well capitalised, and has demonstrated clinical and commercial success. My current problem is having no spare cash available to pull the trigger and buy the stock. Hopefully that will change in the coming weeks!
If the company can beat guidance in its April full-year results, then I think it’s one FTSE 250 stock to seriously watch in 2024.
