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Is it finally time to invest in Woodford Patient Capital Trust plc?

At 75p or so, the share price of Woodford Patient Capital Trust (LSE: WPCT) is where it was when I last wrote about the closed-ended investment fund in February. There’s been a bit of wiggling up and down, but there is evidence of basing on the chart following the plunge of around 30% since last summer. Is this a buying opportunity?

Declining net asset value

In February, the trust reported its net asset value at 91.22p per share. More recently, the figure is 82.59p per share, so with the share price near the same level, value has declined rather than increased. The fundamentals don’t support the basing action I’m seeing on the chart. Maybe the stock is in for further falls, especially if more of the underlying investments disappoint.

Neil Woodford’s public foray into the world of speculative stocks started in 2015 with the launch of FTSE 250 index-listed Woodford Patient Capital Trust, but things haven’t been going well. Last month, for example, one of the biggest holdings, Nasdaq-listed Irish biotech company Prothena, saw its stock tumbling when its most advanced treatment, Pronto, failed a trial. Prothena immediately stopped all spending on the drug that was aimed at treating AL amyloidosis.

Another example is the trust’s now-smallest holding, London-listed Midatech Pharma, an early-stage biopharmaceutical company that focuses on commercialising and developing products in oncology and other therapeutic areas. I can sum up the story of that one so far by telling you that it listed on the stock market in January 2015 with its share price close to 265p, a far cry from today’s level around 29p.

Potential billion-dollar companies?

However, Neil Woodford is reported as saying, in the teeth of such disappointments, that the trust has stakes in several companies that could be worth billions of dollars each in the next five years. On the basis of that potential, and assuming that the trust sticks with its original investments without taking any more punts on jam-tomorrow stocks, I think the lower share price makes it more attractive.

Now we are three years on from when the original investments were made, the probabilities are playing out. Losers such as Midatech become less of a problem. Already the stock has dropped to be the smallest holding in the trust – almost an insignificant weighting – and losers can only lose the trust 100% of its investment. Winners, on the other hand, are uncapped and may go on to deliver percentage returns in the thousands. Today’s losers could go also go on to win in the end.

With the benefit of hindsight, it’s easy to criticise the trust’s apparent initial scattergun approach to speculating on profitless companies.  Successful stock trader Mark Minervini advocates waiting for evidence of success in the financial figures of early-stage companies before investing, arguing that investment returns can still be spectacular with reduced exposure to firms that go on to fail — more like using a rifle than a shotgun. However, with the risks and potential now playing out in the fund’s holdings, ‘right now’ could indeed be a good time to look closely at Woodford Patient Capital Trust.

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Kevin Godbold has no position in any of the 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.