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A soaring growth candidate plus a FTSE 100 dividend stock I’d buy today

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In May I suggested that OptiBiotix Health (LSE: OPTI) was a tempting growth candidate, albeit one carrying some risk. 

Since then we’ve seen a 40% share price gain to 98p, though August has brought a drop back from a peak of 133p. The lesson I take is that growth shares tend to be volatile, and it’s far too early to decide if I was right back then or not.

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The company is big in obesity, high cholesterol and diabetes treatments, and our increasingly wealthy world faces serious problems with all three. A great potential market, then.

We’re not looking at sustainable profits yet, but Thursday’s first-half results update spoke of “a strong period of growth … announcing multiple agreements,” and a “transition from a development company into a commercial business.

Partnerships growing

Highlights include an agreement for the US manufacturing and supply of the firm’s SlimBiome product, the successful completion of taste studies on SweetBiotix, and multiple production, distribution, and marketing agreements covering a range of OptiBiotix products. Oh, and SlimBiome won two awards for its weight management and health properties.

The bottom line shows a loss after tax of £1.085m, with a cash position of £1.797m at the end of the period. That might sound tight, but the company reckons it will “cover the delivery of existing development and commercial plans.

Getting to sustainable profitability is crucial, and I think it might be a close thing. There’s still some significant risk here, and should the cash run out then dilution through new funding would be possible.

But on balance, I still see OptiBiotix Health as a tempting growth buy.

Income champion

At the other end of the size scale, we have pharmaceuticals giants like GlaxoSmithKline (LSE: GSK), whose shares have actually put many a growth candidate to shame in 2018 with a 20% gain so far.

But a share price recovery after Glaxo stemmed its falling earnings following several years of hits from the expiry of key patents is only part of the picture — for me, Glaxo’s strength is as a long-term dividend payer.

Even while EPS was falling, the company maintained its dividend, which yielded 6% last year. Forecasts for the next two years suggest 5% on a higher share price, and we should even have modest cover by earnings — not great yet, but probably enough for now.

Approvals

The key obviously lies in drug development, and GlaxoSmithKline’s drugs pipeline does seem to be progressing well, with positive updates on new treatments coming in regularly. The latest, on Thursday, concerns the company’s Nucala (mepolizumab) add-on treatment for asthma, which has now gained European Commission marketing authorisation for use with paediatric patients.

Like OptiBiotix’s obesity-related products, this one is also targeted at a very serious chronic condition, which again seems to be on the rise in the developed world. And mepolizumab sounds like it’s using an innovative approach as the only drug so far aimed at its specific biological target.

The big question is how long it will be before Glaxo’s stream of new products results in a return to sustainable earnings growth, and flat forecasts for this year and next can’t tell us yet.

But I’m confident it will happen, and for now we can keep taking those dividends.

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Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. 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.