Finding shares that are capable of delivering high total returns can be tough at the best of times. However, with stock markets having risen significantly in recent years, it may be even more challenging than ever at the present time. In many cases, valuations are now somewhat excessive and could indicate a narrow margin of safety for new investors.
However, within some sectors there remain good value growth stocks. Healthcare is one such industry, and here are two stocks that could help you on your journey to making a million.
Reporting on Wednesday was Eco Animal Health (LSE: EAH). The global animal healthcare specialist’s first-half results showed a rise in sales of 8%, while adjusted EBITDA (earnings before interest, tax, depreciation and amortisation) moved 35% higher. The upbeat results were partially due to strong growth in demand for Aivlosin. The company saw a strong performance across all of its major geographic areas, with the exception of Latin America, excluding Mexico.
The firm continues to invest in new routes to market, product development and people in order to support future growth. With new marketing authorisations gained in America and Malaysia, its future prospects appear to be bright. In fact, in the current year Eco Animal Health is forecast to report a rise in its bottom line of 42%. This puts it on a price-to-earnings growth (PEG) ratio of just 0.9, which suggests that its share price could move significantly higher.
With it having significant diversity in terms of geographic exposure, it could be a good stock to own ahead of Brexit. Its financial performance is less highly correlated to the outlook for the wider economy, which may reduce its risk profile yet further. This could make its risk/reward ratio hugely attractive.
The share price performance of pharmaceutical company Shire (LSE: SHP) has been disappointing of late. It has fallen by 17% during the last year as investor sentiment has declined following the company’s combination with Baxalta. There have been doubts surrounding how well the two companies fit, and this uncertainty could have negatively impacted the share price performance.
However, with Shire forecast to deliver a rise in its bottom line of 7% in the next financial year, it could be worthy of a higher valuation. It currently trades on a price-to-earnings (P/E) ratio of just 9.5, which equates to a PEG ratio of 1.4 when combined with its earnings growth rate. This suggests there is a wide margin of safety on offer that could mean the stock is able to offer limited downside as well as high upside potential.
Certainly, Shire lacks income investing appeal at the present time. Considering its size, a dividend yield of 0.7% is relatively disappointing. However, with future prospects being positive and it having such a low valuation, it could deliver a rising share price in the long run.
Making a million
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Peter Stephens owns shares in Eco Animal Health. The Motley Fool UK has recommended Shire. 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.