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.

Encouraging performance

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.

Solid performance

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.

The post 2 top pharma stocks I’d buy right now appeared first on The Motley Fool UK.

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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.

Two companies in particular have caught my eye: a FTSE 100 giant whose shares have performed even worse than the sector average and a FTSE 250 firm whose shares have bucked the trend.

Blue-chip bargain

Rare diseases specialist Shire (LSE: SHP) completed a $32bn acquisition of US firm Baxalta in June 2016 and its shares went on to reach a post-acquisition high of over 5,200p a few months later. However, market sentiment has since waned conspicuously. The shares started this year at under 4,000p and annual results a fortnight ago failed to arrest a further decline. The shares are currently trading at little more than 3,000p.

At the time of the Baxalta acquisition, Shire had projected over $20bn annual revenues by 2020. It’s disappointing this has since been revised down to $17bn-$18bn but I believe the share price has fallen much too far.

The company’s 2018 earnings guidance is for between $14.90 and $15.50 per American Depository Share. Converted to ordinary shares at current exchange rates, the range is 355p to 370p, giving a price-to-earnings (P/E) ratio of between 8.5 and 8.2.

The P/E makes Shire cheaper than its sector peers and net gearing of 53% is also relatively low. Strong free cash flow during 2017 reduced net debt by $3.4bn to $19.1bn, while year-end shareholder funds stood at $36.2bn. With its market capitalisation of £27.5bn ($38.5bn) and bargain basement sub-10 P/E, I rate this Footsie blue-chip a ‘buy’.

Mid-cap marvel

Also on my ‘buy’ list is FTSE 250 veterinary pharmaceuticals specialist Dechra (LSE: DPH). The company announced strong half-year results today and the shares are up over 5% to 2,450p, as I’m writing. This is a new all-time high and takes the return over the last 12 months to more than 50% to value the business at £2.5bn.

Dechra reported a 12.5% rise in first-half revenue (11.2% at constant exchange rates), with North America contributing 20.7% and Europe 5.8% at CER. Higher profit margins fed down to a 20% increase in earnings per share (EPS).

Continued growth at this rate would see EPS of 77.6p for the company’s current financial year ending 30 June. On the face of it, the resulting P/E of 31.6 looks expensive, but the company has just completed two exciting acquisitions, of AST Farma and Le Vet Beheer, for a total consideration of €340m.

These two companies have been a primary target for Dechra for a number of years. The board said the deals realise “a rare opportunity to strengthen our EU segment in all the major European countries in which we operate.” I believe the springboard this provides Dechra for both expanding its pipeline and improving its reach makes the premium P/E worth paying and I rate the stock a ‘buy’.

The post 2 pharma stocks I’d buy in March appeared first on The Motley Fool UK.

More reading

• Down 36% in 5 years, will the Greggs share price ever recover?
• How Microsoft’s strong earnings affect the wider stock market
• Up 11% today, could the Magnum Ice Cream share price be an overlooked bargain?
• As Endeavour Mining shares jump 7% on Q1 results, is this a way into the gold rush?
• £5,000 invested in this red hot FTSE 250 growth stock last month is now worth…

G A Chester has no position in any of the shares mentioned. 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.