If you want to start investing, but don’t know where to begin, here’s some advice on how I would invest £5,000 of my own funds in today’s market.
Personally, I don’t like to take too much risk with my money. I like companies that have a proven track record of creating value for investors, that operate in defensive industries such as healthcare.
That’s why my first pick is Abcam (LSE: ABC).
If you’ve never heard of it before, you’re probably not alone. The company flies under the radar of most investors, but that doesn’t mean it’s any less attractive. The business sells antibodies and research tools to life-science groups, a highly specialist and unique industry.
It has carved out a niche for itself in this market over the past two decades, and while the journey hasn’t been easy, investors who stuck with the business for the tour have seen impressive returns. After going public at around 42p per share in November 2005, today the shares are changing hands for 1,140p, a compound annual return of 19.3% according to my figures.
And it doesn’t look as if it is going to slow down anytime soon. Management believes the company can maintain double-digit revenue growth in the medium term as demand from the world’s ever-growing healthcare market remains robust.
Opportunity to buy
Back in September, management announced that the company would be increasing the amount it spends on research and development to make the most of the opportunities it has available to it. Unfortunately, the market took a dim view of the decision because it means profit margins will fall slightly (analysts are expecting a contraction in the firm’s EBITDA margin of 3%). The shares have slumped 25% over the past four months following this news.
However, I think this presents an opportunity for investors to acquire shares in a world-leading, defensive business at a favourable valuation. If you are looking for stocks to include in your portfolio, I think Abcam is indeed worth a closer look.
The second stock I’d buy with my £5,000 fund is NMC Health (LSE: NMC). Once again, this is a healthcare business that has generated impressive returns for shareholders in the past and looks set to continue doing so.
This company, which operates private healthcare facilities across the Middle East and in several other attractive markets around the world, has produced a total return for investors of 45% per annum over the past five years.
I see no reason why this trend cannot continue. In October last year, the group surprised the market by announcing growth for 2018 would surpass expectations with revenue rising 24% and EBITDA jumping 36%. New facilities in its key UAE market, coupled with the acquisition of Aspen Healthcare — one of Britain’s biggest private hospital providers — are responsible for the improved growth.
City analysts believe the expansion will continue into 2019. They’ve pencilled in earnings per share growth of 29% for 2019, and they also reckon the company will reward investors with a 30% increase in its modest dividend distribution to $0.32 per share, a yield of around 0.9%.
Right now, shares in the hospital provider are expensive, but I think it is worth paying a premium for the growth the business offers. The stock is trading at a forward P/E of 25.6, falling to 19.7 for 2019.
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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended NMC Health. 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.