Buying shares in companies which are not performing particularly well for one reason or another may seem like a risky strategy. After all, whether it is a share price fall, a lossmaking position or an uncertain outlook for the business, paper losses can occur in such scenarios. However, the possible rewards in the long run from buying such companies can also be high. With that in mind, here are two stocks which could offer growth potential in the long run.
Updating the market on Wednesday was ribonucleic acid (RNA) technology company Silence Therapeutics (LSE: SLN). The company reported that it has been granted patents in the US. They will provide the business with further protection for its chemical modification technology there. The company believes that the newly granted claims are relevant to third-party RBAi medicines. It takes the total number of its US patents to 10.
While the company is currently lossmaking, according to its most recent interim results it is making good progress with its strategy. Its core business of drug discovery and development is now fully operational. It has also made changes to its management and controls functions which could lead to improved performance in the long run.
With Silence Therapeutics believing that at least one company may require a licence under its chemical modification patent portfolio, its financial future could improve in future years. Therefore, while it may be a relatively risky stock to own due to its small size and lack of profitability, its share price could continue to rise after its 97% gain in the last year.
While Silence Therapeutics may have risen sharply, fellow healthcare industry incumbent Hikma Pharmaceuticals (LSE: HIK) has had a tough period. The company has recorded a share price decline of 41% in the last year as a profit warning has hurt investor sentiment in the stock. That was caused by pricing pressures which it expects to last into 2018. This means that a quick recovery in its share price may not be on the cards.
However, after a forecast fall in earnings of 20% in the current year, Hikma is expected to record a rise in its bottom line of 10% next year. This could help to boost investor sentiment – especially since it now trades on a relatively low valuation. For example, the stock has a price-to-earnings growth (PEG) ratio of just 1.5 and this suggests that a wide margin of safety could be on offer.
Certainly, the company’s near term outlook is challenging. And there is a risk that the pricing pressures it is experiencing could last over the medium term. However, with a low valuation and a fundamentally sound business model, it could deliver improving share price performance in the long run. Therefore, now could be the perfect time to buy a slice of it.
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Peter Stephens owns shares in Hikma Pharmaceuticals. The Motley Fool UK has recommended Hikma Pharmaceuticals. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.