The healthcare industry continues to offer significant growth potential for the long term. A growing world population is set to be a feature of the coming decades, and this may lead to greater demand for healthcare provision and services. Alongside this, the world’s population is also ageing, and this may cause additional demand growth over the coming years.
As such, buying a number of pharma stocks within a portfolio could be a shrewd move. Here are two companies which could be worth a closer look.
Reporting on Monday was speciality pharmaceutical company Diurnal (LSE: DNL). It targets patient needs in hormonal diseases and announced relatively upbeat results for the first half of its financial year.
The company continues to make progress with its overall strategy. For example, it is moving towards becoming a revenue-generating entity, with the approval of its first product, Alkindi, in Europe in early January. This highlights the ability of the company to develop a product from concept through to commercialisation. Market launch is planned for the second quarter of 2018, which could provide a boost to investor sentiment in the stock.
There has also been progress with the company’s drug trials. And while it remains a lossmaking business (its operating loss was £7.7m in the first half of the year), its cash resources of £14m suggest it has sufficient financial resources to deliver on its strategy over the medium term.
Certainly, Diurnal is a relatively small pharma stock which could prove to be volatile and high risk. However, it seems to have a solid strategy and could deliver improving share price performance in the long run.
Also offering upside potential within the healthcare industry is veterinary products specialist Dechra (LSE: DPH). The company has an excellent track record of growth, with its bottom line rising in each of the last five years. In fact, during that time it has delivered earnings per share growth of around 25% per annum, which suggests it has a very consistent growth outlook.
Over the next two years, Dechra’s earnings are due to rise by around 17%-18% per annum. While this is slightly lower than its average during recent years, it is still relatively high when compared to many of its large and mid-cap sector peers. As such, it could be worthy of a premium valuation in future.
At the present time, the stock trades on a price-to-earnings growth (PEG) ratio of just 1.5. This suggests that it could deliver high capital growth in the long run. Furthermore, with it having a dominant position within its industry and a solid track record of growth, its risk profile appears to be low. This could make it an enticing investment, with demand for animal healthcare products set to increase as world food production rises over the coming years.
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Peter Stephens has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.