Should I stick with it or take the loss?

Poor performer

The stock in question is actually an investment trust. In theory, this can be a great way of getting exposure to a particular theme without the hassle of needing to find the diamonds in the rough oneself.

Trouble is, my holding in Biotech Growth Trust (LSE: BIOG) is still to deliver the goods. And that’s putting it mildly.

There are a few reasons for this shameful share price performance.

As it sounds, the trust buys stakes in companies that have some involvement in the biotech sector. Importantly, these tend to be smaller firms rather than healthcare heavyweights.

That last bit is key. As a rough rule, small businesses have more potential to grow as a faster clip. But they also come at the risk of greater volatility in their share prices if things don’t go well. And biotech firms are particularly susceptible to setbacks.

The anti-vaccine stance of US Health Secretary Robert F Kennedy Jr isn’t helping matters either and has probably contributed to a slump in funding from investors in the post-Covid-19 pandemic era.

But it’s not just that the share price has fallen in the years I’ve owned this investment. This (paper) loss is compounded by the fact that I’ve paid management fees on top. Quite reasonably, I’d like to see some return on that cost at some point!

Ready to rocket?

For balance, I reckon there are some good arguments for staying invested.

The potential for AI to revolutionise drug discovery can’t be underestimated. As an example, it was recently reported that scientists had used machine learning to create two potential antibiotics to kill gonorrhoea and MRSA. It’s still early days, of course, but the progress made so far is exciting. Indeed, it might be one reason why Biotech Growth Trust’s share price has climbed 12% in the last month.

A second argument is that the number of acquisitions in this space could rapidly accelerate as patents held by big pharmaceuticals begin to expire. The prospect of ageing populations — and the likely higher demand for treatments this will generate — could also see this part of the market get more attention.

Given the rate small firms burn through cash, an interest rate cut in the US would probably help to revive market interest too.

Here’s what I’m doing

Thankfully, my position in Biotech Growth Trust is pretty small, underlining the Foolish principle of spreading money around the stock market rather than going for broke in one niche sector. As a result, the damage remains minimal, if immensely frustrating.

Rather than move away from this sector completely, however, I’m now contemplating moving my remaining capital into an exchange-traded fund. The snag with this is that a (cheaper) passive vehicle like this will probably have lower exposure to smaller companies.

I need to do a bit more research before making a decision. Regardless, this investment is well and truly on the ‘naughty step’.

The post This FTSE investment trust is stinking out my Stocks and Shares ISA. Time to sell? appeared first on The Motley Fool UK.

Go small

The investment in question is Biotech Growth Trust (LSE: BIOG).

As it sounds, this looks to own a portfolio of stocks that use living organisms and molecular biology to make products that can help health, agriculture, and the environment.

A key point is that the businesses favoured here are not yet sustainably profitable and often need funding for clinical trials. This means the trust has a big weighting towards small-cap stocks (market cap below $2bn). The majority of the holdings are also based in the US, even though the management team is free to select them from anywhere.

Why I’ve bought more

The first reason I’ve bought more is the current momentum I’ve already mentioned. After a few tough years, it seems like we’re seeing a recovery in the sentiment towards biotech minnows. Much of this is probably down to the interest rate pivot we’ve seen in recent months, both in the UK and the US.

Despite such a decent run, the sort of stocks that the Biotech Growth Trust likes to own are still cheap, both relative to the titans of the sector and the S&P 500. I’m crossing my fingers that that this discount will reduce from here. I also think mergers and acquisition activity could increase.

My other main reason is that the outlook for biotech is surely only positive. Rapidly evolving technology will hopefully give rise to cures for our biggest diseases as the years pass. As well as being wonderful for humanity, it could also create a lovely pot of money for investors in the process.

Big risks

While I’m an optimist on biotech in general, I also know it could be a roller-coaster ride in the interim. Clinical trials are often unsuccessful. Even the most promising treatments take time to be approved by regulators.

This all costs a lot of money and helps to explain why the trust fell roughly 50% in value between 2021 and the beginning of 2024 as inflation raged.

That sort of volatility is exactly why I want to own a fund over single-company stocks. I’m confident those running it know far more about this space — and the science behind it — than I ever will. The snag is that fees will be due regardless of performance.

Not done yet

Never in a million years would I consider going all-in on this sector. But I do believe that having a large majority of my wealth in established, stable companies permits me to take on more risk with what’s left over.

This approach — known as ‘barbell investing’ — is why I hold the Biotech Growth Trust. It also allows me to sleep at night.

What happens if/when the ‘Trump boost’ starts to wane is debateable. But I do plan to hold for a very long time.

My most recent purchase probably won’t be my last.

The post Up 41% in 1 year, I’m buying more of this growth trust for my Stocks and Shares ISA appeared first on The Motley Fool UK.

Rupert Hargreaves: Bloomsbury Publishing

Bloomsbury Publishing (LSE: BMY) is my top British growth stock for January. A rise in the demand for reading material through the coronavirus pandemic has generated windfall profits for the company over the past two years.

Bloomsbury aims to capitalise on this newfound love of reading in the years ahead. Analysts believe this will translate into earnings growth of 11% this year and 10% in 2023.

Of course, this growth is not guaranteed. Rising inflation could cause consumers to cut back on spending on non-essential items like books. Despite this headwind, I would buy the stock for my portfolio.

Rupert Hargreaves does not own shares in Bloomsbury Publishing.

Zaven Boyrazian: Frontier Developments

Frontier Developments (LSE:FDEV) is a game development studio and publishing house. It’s responsible for a popular collection of titles, including Elite Dangerous and Jurassic World Evolution.

The stock took a significant hit in 2021 after management lowered its revenue guidance due to underperforming sales. However, its first entry of the Formula 1 franchise is coming out later this year, along with multiple other projects through its publishing arm.

Personally, I think the lineup of new releases could drastically boost sales again. And with further franchise titles coming out in 2023, including Warhammer, the stock looks like it has excellent growth potential in my mind.

Zaven Boyrazian owns shares in Frontier Developments.

Royston Wild: B&M European Value Retail 

City analysts don’t expect B&M European Value Retail (LSE: BME) to record ripping earnings growth in the near term. In fact, they’re expecting profits to reverse over the next 12 months or so as supply chain costs balloon. It’s my opinion, however, that earnings could actually surprise positively as shoppers seek out bargains in this high-inflationary environment. Indeed, B&M’s trading statement in early January showed profits exceeding analyst estimates.

This FTSE 100 share is unlikely to be a flash in the pan. Discount grocers Aldi and Lidl have grown rapidly over the past decade as consumers prioritise value. Encouragingly, B&M is expanding rapidly to make the most of this opportunity, too.

Royston Wild does not own shares in B&M European Value Retail.

G A Chester: Gym Group 

Low-cost operator Gym Group (LSE: GYM) was expanding and delivering strong revenue and cash-flow growth before the pandemic. Inevitably, government-mandated shutdowns had a negative impact on the business. 

There remains some risk from coronavirus, but I think Gym is cheaply valued on its pre-pandemic cash flows. Furthermore, it’s well funded to exploit an unprecedented growth opportunity coming out of the pandemic. 

Due to large numbers of store closures in UK towns and cities, the company has been offered dozens of high-quality sites on attractive terms. Management has never seen the property market so favourable and is taking full advantage to accelerate expansion. 

G A Chester has no position in Gym Group.

Ed Sheldon: Sage

My top British growth stock for January is Sage (LSE: SGE). It’s a leading provider of cloud-based accounting and payroll solutions with a focus on small and medium-sized businesses.

I’m bullish on Sage for a couple of reasons. Firstly, I expect the company to benefit from the ongoing global economic recovery. Better economic conditions should lead to higher demand for the company’s accounting solutions.

Secondly, the valuation seems very reasonable. Currently, Sage sports a forward-looking P/E ratio of around 32. By contrast, US rival Intuit currently trades at around 50 times this year’s forecast earnings.

One risk to consider here is competition from Intuit and other players such as Xero. I think this risk is baked into the valuation, however.

Edward Sheldon owns shares in Sage and Xero.

Roland Head: Electrocomponents

Profits at industrial and electronic parts supplier Electrocomponents (LSE: ECM) have risen by an average of 40% per year since 2016.

According to CEO Lindsley Ruth, trading was strong during the third quarter. He now expects results for the year to 31 March to be ahead of broker forecasts. My sums suggest we could see earnings growth in excess of 40% in 2021/22.

The main risk I can see is that with the stock trading on 26 times forecast earnings, any disappointment could cause the shares to slide. However, I expect further growth.

Roland Head does not own shares of Electrocomponents.

Christopher Ruane:  S4 Capital

After strong growth for most of 2021, digital ad group S4 Capital (LSE: SFOR) fell in the final quarter. It had a weak start to 2022. Like S4 boss Sir Martin Sorrell, I have increased my holding this month.

One risk is the cost of integrating acquisitions eating into profits. But the company continues to grow aggressively, acquiring another US agency this month. For 2022 it is targeting 25% growth in both gross profit and net revenue. S4 is set to benefit from growing spend on digital advertising. 

Christopher Ruane owns shares in S4 Capital.

Paul Summers: Biotech Growth Trust

Last year was pretty awful for shareholders of minnow-focused Biotech Growth Trust (LSE: BIOG). As a patient, long-term investor, however, I’ve been taking this period of selling pressure as an opportunity to load up.

Whether 2021 will see a return to form is hard to say. On an optimistic note, directors believe the valuations given to small-cap stocks in the sector are now “very compelling”. A rise in merger and acquisition activity, the passing of price legislation in the US and increased regulatory approval of drugs (held up by the pandemic) could also spark a recovery.

Paul Summers owns shares in Biotech Growth Trust

Harshil Patel: Alpha FX 

My top British growth stock for January is financial solutions company Alpha FX (LSE:AFX). It’s a founder-led British business focused on two areas: foreign exchange risk management and alternative banking. 

Trading has been strong, and the company has proven sales and profit growth over several years. I like that it has a diversified client base and client numbers are also growing.  

I’d say not only is Alpha FX a growth stock, but it’s also a good quality business with a double-digit profit margin. 

With a market capitalisation of under £1bn, I reckon it has much room to grow further.  

Harshil Patel does not own shares in Alpha FX.

The post Top British growth stocks for January 2022 appeared first on The Motley Fool UK.

Should I be piling into the DNA-sequencer’s stock as soon as possible, or steering clear for now?

IPO success story

Based on trading to date, it’s easy to think the former. Such was the scale of demand, the Oxford Nanopore share price exploded to 645p from its initial IPO value of 425p on 30 September.

Clearly, its involvement in tracking variants of Covid-19 over the last year or so has done the firm’s profile no harm at all. However, early investors also seem to think its plans to move into the applied genomics market — including areas such as agriculture and food safety — could light more fires under ONT stock in time.

Like every potential investment however, it’s worth asking what can go wrong as much as what can go right. I see two potential issues. 

#1 Post IPO sell-off. Although the initial gains have been excellent, there’s no guarantee the Oxford Nanopore share price will continue to ascend, even if the company executes its plans perfectly. Regardless of quality, traders will routinely sell up once the buzz dies down. It’s worth noting that momentum’s already stalled a little. The stock changes hands for 577p, as I type.

# The growth is priced in. With the Oxford Nanopore share price charging ahead, the company quickly boasted a market capitalisation of £5bn after its IPO. Based on the growth potential, that’s not entirely irrational. However, this is still a nascent market and ONT only generated a little over £100m in revenue last year. It’s also unprofitable, and could be for years.

Safer bet?

Considering the above, I won’t be investing in ONT just yet. Instead, I’m content to keep adding to my holding in Biotech Growth Fund (LSE: BIOG). This may seem like a rather odd decision. After all, BIOG’s share price has declined 18% over the last 12 months. 

So, why BIOG over ONT?  Three reasons:

1# Safety in numbers. The Biotech Growth Trust has 87 holdings, based on its latest factsheet. Given the aforementioned volatility often seen in the sector, I reckon this diversification makes it considerably less risky than ONT.

2#Great track record. Despite performing poorly in 2021, BIOG has done admirably for investors over a longer time frame. Since September 2016 (and despite the recent sell-off), the share price has climbed 71%. If shares had been sold at the February peak, the gain would have been 145%.

3#Small-cap focus. BIOG’s preference for small-cap companies helps explain recent underperformance. Since these have the potential to grow at a far higher clip than established heavyweights, the longer-term gains should theoretically be very good indeed. What’s more, BIOG offers exposure to fast-paced players in emerging markets such as China.

Obviously, the share price could continue falling for now. Regardless of what happens in the global economy, it’s also worth noting that only a minority of biotech firms become profitable. Those relatively high ongoing fees (which holders of ONT won’t have) will need to be paid whatever happens.

As things stand though, BIOG will remain my sole biotech holding. Oxford Nanopore goes on the watchlist. I’ll reassess if/when the froth subsides.

The post The Oxford Nanopore share price soared at its IPO. Should I buy now or wait? appeared first on The Motley Fool UK.

None of this has stopped me from continuing to buy growth stocks for my own portfolio though.

Contrarian growth stock

After sitting on the sidelines for a while, I’ve finally grabbed the bull by the horns and snapped up shares of online holiday firm On the Beach (LSE: OTB).

Devoid of the high fixed costs endured by larger peers such as TUI, OTB’s flexible, online-only business model ensures it has minimal cash burn while travel restrictions remain in place. A recent £26m share placing also gives the company sufficient financial firepower for a big marketing push when rules are relaxed and demand for holidays explodes.

This isn’t to say that taking a position now is without risk. Those restrictions will likely be in place for a while yet. Moreover, the barriers to entry into this market aren’t particularly high.

Nevertheless, the progress of vaccination programmes leads me to think that the risk/reward trade-off is far better than it used to be. OTB’s share price is also down roughly 40% since March. This gives me what I feel to be a decent margin of safety. I’ll be continuing to drip-feed my money into this growth stock over the next few months. 

Buying the dip

I simply couldn’t finish July without adding to my stake in fast-fashion giant Boohoo (LSE: BOO). A bumpy ride over the last month, not helped by a poorly-received update from industry peer ASOS, looks to be another opportunity to acquire this growth stock at a great price.

The 20% fall in Boohoo’s value over the last six months leaves its shares changing hands for less than 26 times earnings. I think that could prove to be a steal once the company puts its ESG (Environmental, Social, Governance) concerns to bed. The negative publicity will hopefully lessen as BOO demonstrates what it’s done to put things right with its supply chain.

Sure, there are other potential headwinds. Confirmation of an online sales tax could send the shares lower, as might a simple lack of news over the next month. However, some knockout interim numbers in September may arrest this fall. Evidence that recent acquisitions are bearing fruit would provide another boost. 

Investing megatrend

My last buy this month has actually been an investment trust rather than a single company stock.

I began buying Biotech Growth Trust (LSE: BIOG) in April. Unfortunately, its shares have drifted lower since then. Reasons could include the ongoing rotation from growth stocks into those appearing to offer more value. There might also be a belief that healthcare-related funds have had their time in the sun.

Notwithstanding this, I’m confident BIOG’s managers — many of whom are medically trained — know what they’re doing. An annualised return of 17% over the last five years is far better than the trust’s benchmark. Then again, this has been at the expense of greater volatility, As such, those with weak stomachs need not apply.

Given the rate of technological progress, this area could be one of the investment themes for years. I think a diversified trust like BIOG is the best way to play it.

The post 3 UK growth stocks I’ve been buying in July appeared first on The Motley Fool UK.