Why is the stock surging? And should I add this company to my growth portfolio? Let’s take a look.

FTSE small-cap: a biotech stock with hidden potential

PureTech Health (LSE:PRTC) discovers, develops, and commercialises new treatments for diseases that affect the brain, immune system and gut.

A common problem with young biotech companies is finding the necessary funding to develop new medicines. After all, the process is long and expensive, with a high chance of failing to deliver a viable product. But this FTSE small-cap stock has found an intriguing solution.

The business comprises two pipelines. The first is called Wholly Owned, which, as the name suggests, develops new drugs entirely owned by PureTech. The second pipeline is where things get interesting, in my opinion.

It’s called Founded Entities and is essentially a portfolio of nine independent businesses of which PureTech is a major stakeholder. What’s more, some of these businesses, such as Karuna Therapeutics, are actually listed on the stock exchange themselves. So, whenever PureTech needs to raise additional capital to fund its own drug development, it can sell some of its shares.

Combining both pipelines, PureTech has 23 product candidates in its portfolio, 14 of which are already in clinical trial phases, with another two on the market today.

Drug development is risky

The biotech stock has an extensive portfolio of products in its pipelines. And while most have either entered or are entering clinical trial phases, there’s a considerable level of risk to consider.

Firstly, none of the drugs in its Wholly Owned pipeline have been FDA approved as they are mostly in phase 1 trials. And given that the typical drug development cycle lasts around 10 years, it could be some time before any of these products yield tangible returns. And that’s assuming they don’t fail along the way.

Today, the firm generates all of its profits from Founded Entities through stock sales and royalty income on two FDA-approved medicines. The remaining products are once again at various clinical trials stages, although there are two in their final phases.

The highly regulated nature of the drug development industry protects the health of patients. But it also makes it incredibly difficult to release new treatments. Even if a new medicine is approved, there’s still the chance that it won’t be economically viable. For example, PureTech’s new drugs may not be covered by health insurance policies or government health authorities.

The bottom line

This FTSE small-cap biotech stock undoubtedly has a significant level of risk attached to it, especially since the business is currently structured more like a holding company, as opposed to a regular biotech stock.

But over the long term, PureTech looks like a solid business in my eyes. It has a vast portfolio of potential products and is set to continue receiving royalties from treatments designed and developed by other firms. This is one biotech stock I’d add to my growth portfolio.

The post 1 FTSE small-cap biotech stock I’d buy now appeared first on The Motley Fool UK.

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Zaven Boyrazian does not own shares in PureTech Health. 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.

Finding stocks with sound long-term futures can be challenging. After all, fashion and tastes inevitably change in the long run. This could mean that certain sectors and industries enjoy strong growth, only for it to peter out over time.

However, one industry which seems to offer upbeat growth potential for the long run is healthcare. It could benefit from an ageing world population, as well as a larger number of people on this planet in future years. With that in mind, these two companies could be worth buying today for the long term.

Future potential

Reporting on Tuesday was advanced clinical-stage biopharmaceuticals company PureTech (LSE: PRTC). The company released a positive trading statement that sent its share price around 5% higher. It seems to be making good progress with its strategy, with positive clinical results from two pivotal stage affiliates that are now filing for FDA approval. This is expected to take place in the first half of the current financial year.

In the 2017 financial year, progress was made across the company’s advanced pipeline of seven clinical and seven pre-clinical programmes focused on the crosstalk and biological processes associated with the brain-immune-gut (BIG) axis. And with the recent IPO of its affiliate, resTORbio, having progressed as planned, the prospects for the company’s financial performance appear to be positive.

Certainly, PureTech is a relatively risky investment opportunity. It remains lossmaking and this situation could continue over the medium term. However, with the company having made strong progress with its pipeline, it could prove to be a highly rewarding stock for the long term. As such, it may be of interest to less risk-averse investors.

Resilient growth

Also offering the prospect of capital growth within the healthcare industry is Smith & Nephew (LSE: SN). It offers a relatively diverse business model which has historically proven to be resilient. It has delivered more consistent growth than the boom/bust cycle of the pharmaceuticals industry, and this could mean that it is worthy of a higher valuation.

Looking ahead, the company is expected to report a rise in earnings of 4% in the current year, followed by additional growth of 7% next year. This shows that its strategy appears to be working well, and this could prompt a rapidly-rising dividend over the medium term.

In fact, Smith & Nephew is expected to increase dividends per share by around 14% in the next financial year. Although this puts the stock on a forward dividend yield of just 2.5%, dividend payments are due to be covered 2.4 times by profit.

With the stock being relatively mature, this suggests that there could be a fast-paced rise in shareholder payouts over the coming years. This would be unlikely to hurt its financial standing, with its cash flow and balance sheet strength indicating that it has the capacity to deliver sustained growth in the long term.

The post 2 stocks I’d invest in today for my retirement 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.

Keep it Pure 

PureTech’s shares are up almost 3% today after it published its half-yearly report to 30 June, which showed a combination of rising revenues but bigger losses. That’s not unusual in the famously risky biopharma sector, as the group advances more than 20 late and mid-stage clinical programmes and pre-clinical products.

Today it reported significant progress across its pipeline and said it expects to pass a number of key milestones over the next 12 months. The London-listed, Boston-based firm, which has a market cap of £322m, posted a pre-tax loss of $67.2m, up 40% on last year’s $44.5m loss. Most of this went on research and development, which is exactly how a company like this should be spending its money.

Tech boom

Revenue jumped an impressive 92% year-on-year even though its operations do not yet generate consistent product revenues, as is customary with pre-commercial biopharma companies. These revenues related primarily to passing milestones on collaborations with third parties. PureTech expects to earn future revenues from growth stage programmes under both existing and new license and collaboration agreements, which may include non-refundable license fees. 

PureTech is now sitting on cash and equivalents of $247.5m, a drop of 12% on the $281.5m over the year. Chief operating officer Stephen Muniz said this leaves the group well-positioned to fund the upcoming clinical trials and ongoing pre-clinical development.

Bought the pharm

If you want a risky turnaround play, this is it. You are gambling on the company’s success in generating more revenue than it spends on R&D. Its valuation and earnings per share forecasts can give you no indication either. The pipeline looks rich, with PureTech well-positioned to deliver novel medicines and drive major value for shareholders. It remains a punt, but biopharma usually is.

With a far larger market cap of £2.24bn, FTSE 250 power generation specialist Aggreko (LSE: AGK) should be easier to assess. Its share price trades a whopping 65% lower than five years ago, as it has felt the heat from the oil and gas industry downturn and Latin American slowdown.

Heat is on

Earlier this month it posted a healthy 16% rise in first-half group revenue to £792m, excluding exceptional items, but this was disappointingly flat after excluding fuel and currency fluctuations. A 10% drop in profit before tax and exceptional items to £63m was a further blow, although an 84% leap in operating cash flow to £184m partly made up for that.

Chief executive Chris Weston reckons Aggreko is making good progress in boosting its product offering and reducing its cost base, with £100m of cash savings targeted. However, the turnaround has some way to go. Earnings per share are forecast to fall 8% in 2017 for what will be the fifth successive annual drop, but there is light at the end of the tunnel with City analysts suggesting a 12% rise in 2018.

Growth hope

Trading at 13.9 times earnings with a PEG of -1, there is value in this stock. The current yield of 3.3% will keep you warm while you wait for Aggreko to power on again.

The post One of these 2 turnaround stocks could make you rich appeared first on The Motley Fool UK.

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Harvey Jones 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.

Shares in N Brown Group (LSE: BWNG) have lost 65% of their value since their peak in February 2014, and a look at the firm’s declining earnings per share since 2012 makes that look like a reasonable market reaction — or does it?

While EPS has fallen by 17% over that time, the much bigger share price fall has dropped the P/E to only around nine, and forecasts suggest the earnings fall is bottoming out. So what’s behind it all?

N Brown is a home shopping retailer, operating a number of brands including JD Williams, Jacamo and Simply Be — essentially catalogue shopping, and targeted mainly at women aged 30 and above. Catalogue shopping is declining in popularity as folk switch more to the internet to buy their fashionable rags — why settle for one photo in a heavy (and quickly out of date) paper book when you can see multiple views together with video footage?

But the company is increasingly moving towards online retailing too. It’s just been a bit tardy doing so, but it clearly already has the warehousing and distribution systems in place. 

Results for 2016 are due on 27 April, and N Brown’s January trading statement looked good to me, showing a 4.1% rise in third-quarter revenue, with 77% of new customer demand generated online. Chief executive Angela Spindler told us that “All key brands and categories grew in the period“, after some had declined in the first half.

The dividend has been maintained through the tough patch, and forecasts suggest a steady yield of around 6.7%. Even being pessimistic, that leaves room for a cut while still providing a good payout.

At today’s 209p share price, I’m seeing a bargain.

Blue sky

My second choice, PureTech Health (LSE: PRTC), is a very different prospect, and it’s not for those who don’t like a bit of risk. In short, it’s a biopharmaceutical research firm that is not making any profits yet, and is not expected to do so in the next couple of years. So we can forget all the usual fundamental measures like earnings, dividends and ratios, as they’re all negative, zero or “n/a”.

But the company has just announced a licensing and equity agreement with US giant Novartis, “to initially focus on aging-related disorders“. And a Phase 2b clinical study of something that sounds very clever to me is expected to start in 2017 — it will target “diseases related to immunosenescence, an age-related decline in immune function“, they say.

We’ve also seen a steady stream of positive results from various other trials coming through in recent months, in cooperation with a number of other pharmaceuticals firms including Pfizer. In fact, at the interim stage, PureTech spoke of a pipeline of more than 20 clinical studies in progress.

And although the company recorded an adjusted loss of $26.92m, it was sitting on consolidated cash reserves of $297.4m. During the first half of 2016, the group raised $83m, with $50m coming from Vedanta Biosciences and a further $30 million from Akili — so there appears to be plenty of serious outside interest here.

Full-year results should be with us on 6 April, and the financials are likely to take a back seat to news on pipeline progress. At this stage, I’m really starting to think PureTech is looking like an attractive, if very uncertain, investment.

The post 2 FTSE SmallCap stocks I’d buy in April appeared first on The Motley Fool UK.

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Alan Oscroft 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.