Airtel Africa

What it does: Airtel Africa operates mobile networks and offers digital money services in a range of African markets.

By Christopher Ruane. The strong growth prospects for its digital payment business recently led me to invest in Airtel Africa (LSE: AAF).

With its large user base and powerful position in large African markets, I think the firm is set to benefit from high demand for mobile and data services as well as booming digital payment use. That ought to be excellent for the business, which in the first nine months of the year made a post-tax profit of $523m and generated almost $1.5bn in free cash flow at the operating level.

Net debt of $3.6bn is higher than I would like. I also think there are political risks due to the company’s heavy focus on a few markets in Africa.        

However, I think the share price reflects those risks. With Airtel Africa trading on a price-to-earnings ratio of 8, I added it to my portfolio this month.

Christopher Ruane owns shares in Airtel Africa.

Anglo American

What it does: Anglo American is a major producer of various base metals and bulk commodities.

By Andrew Mackie. Over the last month, I have been very active in the stock market, snapping up shares in commodity-related businesses. One company that has sold off hard recently is mining giant Anglo American (LSE: AAL).

Its dividend policy of paying out 40% of underlying earnings is certainly very attractive to me. But it’s not the main reason why I like the stock. Significant macro trends lead me to believe that today’s price represents an absolute bargain.

Among all the talk about the transition to a cleaner, greener economy, what most people fail to appreciate is this will be nothing but a pipe dream unless significant capital investment flows into the mining industry.

Copper is a key metal in our journey to net zero. However, expansionary capex across this industry is heading in the wrong direction. As much as the deficit is talked about, existing prices don’t reflect this reality. In other words, there is no incentive for the likes of Anglo American to bring new supply online.

On top of that, we have increasing urbanisation as well as an emerging trend toward onshoring manufacturing capability to beef up supply chain security. All in all, I believe we are heading into a world of scarcity and that can be nothing but positive for Anglo American.

Andrew Mackie owns shares in Anglo American.

Ergomed

What it does: Ergomed provides specialised services to the pharmaceutical industry, helping companies with their clinical trials.

By Edward Sheldon, CFA. I recently added Ergomed (LSE: ERGO) shares to my portfolio after they fell from near 1,400p to around 1,000p. I see the stock as a good way to get exposure to the healthcare industry.

Ergomed’s recent full-year results showed that the business is performing well right now. Last year, the group generated revenue of £145.3m, up 22.5% year on year. And at the end of 2022, its order book was sitting at a record high £295m.

“As we look ahead to 2023, demand for our services is high,” commented executive chairman Dr Miroslav Reljanović.  

One risk here is that Ergomed’s biotech customers could be impacted by tighter financial conditions. This could affect the company’s growth in the short term.

Taking a long-term view, however, I’m confident in the growth story. Over the next decade, the global drug discovery market is projected to grow by around 9% per year.

Edward Sheldon owns shares in Ergomed.

Forterra

What it does: Forterra is a UK brick manufacturer. It makes the London Brick, which features heavily in UK housing stock.

By Stephen Wright. Buying shares in a brick-manufacturing company as the UK property market has been faltering might seem like a strange decision. But I’ve got a plan.

Over the last 12 months, shares in Forterra (LSE:FORT) have fallen almost 20%. As a result, they’re almost back at their pandemic prices. 

The immediate future does look choppy for the business, but I think the longer-term outlook is much more promising. So I’ve been looking to seize an opportunity to buy shares now to hold for a long time.

Forterra operates in an industry where demand routinely outstrips supply. As a result, around 20% of the bricks used in UK housebuilding are imported .

The company has been investing in expanding its manufacturing in order to exploit this imbalance. And I think it can do a solid job for some time, which is why I’ve been buying the stock.

Stephen Wright owns shares in Forterra.

Ginkgo Bioworks

What it does: Ginkgo Bioworks operates a platform that designs and genetically engineers microorganisms for a wide range of industries. 

By Ben McPoland. I’ve recently been buying shares of Ginkgo Bioworks (NYSE: DNA). This is a Bill Gates-backed stock that’s down 88% in 18 months. It’s still years away from profitability. One share is now $1.32.

So why on earth have I been investing? Well, Ginkgo is a market leader in the revolutionary field of synthetic biology. But it doesn’t develop its own drugs or products. Instead, it operates a state-of-the-art cell engineering ‘Foundry’ for other companies to use. Its customers are from industries as diverse as biopharma, cannabis, food, agriculture and energy.

In that sense, it’s a bit like Amazon Web Services, but for the natural world. Its business model is unique (though admittedly unproven and therefore risky), involving a mix of upfront fees, milestone payments, royalties, and equity stakes in its customers.

Operating at full scale, this could be a wildly profitable enterprise. The applications of engineering biology are almost endless.

Last year’s revenue of $478m was 52% higher than 2021. It has a cash balance of $1.3bn. 

Ben McPoland owns shares in Ginkgo Bioworks.

Legal & General Group 

What it does: Legal & General offers a wide range of financial services including life insurance, pensions and annuities.  

By Royston Wild. Legal and General Group (LSE:LGEN) offers brilliant value from a growth and income perspective. So I decided to open a position in the FTSE 100 insurer following heavy share price weakness in March. 

Today its shares trade on a forward price-to-earnings (P/E) ratio of 7.3 times. This is around half the average that FTSE index companies change hands on. 

Meanwhile the company’s prospective dividend yield sits at 8.3%, comfortably above the 3.6% blue-chip average. 

I’m especially drawn to Legal and General because of its healthy capital position. The business throws out massive amounts of cash, and this gives it the scope to pay big dividends year after year.  

Cash generation rose an impressive 14% in 2022 to £1.9bn. And it had a CET1 capital ratio of 236% at the end of last year, an all-time high. The firm’s robust balance sheet also gives it plenty of scope to grow earnings though organic investment and acquisitions. 

Royston Wild owns shares in Legal & General Group. 

PayPal

What it does: PayPal is one of the largest fintech companies in the world. It’s the leader in the digital wallet space outside of China and hosts over 400m active accounts worldwide.

By John Choong. With the NASDAQ on the verge of entering a new bull market, one would expect growth stocks like PayPal (NASDAQ:PYPL) to start rising too. However, the stock has been lagging behind with a meagre gain of just 1% this year.

Recession fears, competition from Apple, and slowing user growth all have parts to play in PayPal’s depressed valuation. And while those fears are valid, it shouldn’t discount the company’s own potential either. The tech group continues to innovate en masse, which should see user adoption increase along with the ever-growing shift of consumer spending towards e-commerce.

What’s more, management has guided for a rather positive year ahead. Given the firm’s track record of beating estimates, I’ve got a decent amount of confidence that it can deliver another set of excellent results. More importantly, the board continues to manage capital effectively given its healthy debt-to-equity ratio of 53%. Thus, with its valuation multiples sitting near a decade low, I’ve added to my position.

John Choong has positions in PayPal.

Primary Health Properties

What it does: Primary Health Properties leases 513 facilities to various providers in the UK and Ireland.

By Mark Tovey. Real Estate Investment Trusts have taken a tumble over the last year, with iShares UK Property UCITS ETF down 30%.

I’d be worried about investing in trusts that own blocks of flats, office space or shopping malls in case rent defaults spike.

But because 90% of the rent roll of Primary Health Properties (LSE:PHP) comes from the UK and Irish governments on inflation-indexed leases, I think the default risk is exceptionally low.

The downside is that a shake-up in NHS policy could see local health authorities forced to scrimp on the amount of space they rent, for example.

Regardless, I bought Primary Health Properties shares this month. What tipped the scales for me was the company’s 26 consecutive years of dividend growth.

The dividend yield is 6.2%. If it can maintain its record of growing that payout, my annual return as a percentage of the initial investment could one day climb to double figures.

Mark Tovey has shares in Primary Health Properties.

The post 8 shares that Fools have been buying! appeared first on The Motley Fool UK.

Here, I’m going to highlight two stocks I’ve snapped up for my ISA in the last few weeks. Both have taken a big hit recently and I see the potential for a rebound.

A buying opportunity

First up is Ergomed (LSE: ERGO). It’s an under-the-radar, founder-led company that provides specialised services to the pharma industry. Operating in over 100 countries, it offers solutions to project management (for drug trials, etc), clinical monitoring, regulatory affairs, and more.

Ergomed’s share price has come down from near 1,400p to around 1,000p since the start of December and I see a lot of appeal in the stock after the fall.

This is a healthcare company that has a fair bit of momentum right now. Last year, the group generated revenue of £145.3m, up 22.5% year on year. And at the end of 2022, the group’s order book was sitting at a £295m record high.

As we look ahead to 2023, demand for our services is high.

Dr Miroslav Reljanović, Ergomed Executive Chairman

The risk here is that funding for biotech customers could dry up if financial conditions continue to tighten. This could impact the stock – which currently has a price-to-earnings (P/E) ratio of about 22 – in the short term.

Taking a long-term view however, I’m confident in the growth story. Over the next decade, the global drug discovery market is projected to grow at around 9% per year.

Huge growth potential

Another stock I bought was Airbnb (NASDAQ: ABNB), which is listed in the US. It operates the world’s largest home rental platform.

There’s a lot to like about this well-known company from an investment perspective, in my view. It has a great product/service for a start. I was reminded of this when I recently took a trip to Australia. Through Airbnb, I was able to find some top-notch accommodation.

Secondly, it has a very powerful brand, so powerful that it has even become a verb. This is a huge competitive advantage.

Third, the company has plenty of growth potential. The beauty of its platform is that it’s really scalable. I see the company as well-placed to benefit from the retirement of the Baby Boomers (who love to travel).

Looking forward to 2023, we’re seeing strong demand in Q1, indicating that consumer confidence to travel remains high.

Airbnb 2022 results

Finally, the company is now profitable. This year, the group is projected to generate earnings per share of $3.30.

Now ,Airbnb shares are well off their 52-week highs. This time last year, they were trading near $165. Today, they’re near $110.

Yet even after this share price weakness, they’re still quite expensive. Currently, the forward-looking P/E ratio here is about 33. This adds risk to the investment case.

I’m convinced that buying now will pay off in the long run though. I think this travel company is just getting started.

The post I just bought these beaten-up growth stocks for my ISA appeared first on The Motley Fool UK.

Growth stocks can be volatile in a slump though. And the risk is that the bottom can be hard to spot.

So fallen growth shares might still have a lot further to go. On that cheery thought, here are three I like the look of.

Growth reset

Alliance Pharma (LSE: APH) acquires and markets pharmaceutical products, and it brought in the growth investors.

The shares more than doubled in the five years to March 2022. But then the wheels came off, and they crashed.

Since that share price reset, we’ve had a modest recovery. And I think I see more to come.

FY22 results are due on 21 March, and the firm reckons they’ll be decent. The board says it expects cash flow to “build strongly in 2023“. That should help get debt down and reduce one of the main risks.

The City expects a price-to-earnings (P/E) ratio of 19. But earnings growth could drop that to around 12 by 2024.

If the results don’t impress, we could see more weakness. But if they do, might we see a new bull run?

IT services

Computacenter (LSE: CCC) put on a bit of a growth spurt in the Covid years. The work-from-home thing was a big help on that score.

The share price has since fallen back again though. I do think it got a bit too hot, but it looks to me like it’s cooled a bit too far now.

We’re looking at P/E multiples of only around 13. And that’s for a company that reckons it still has solid growth potential in the coming years.

The tough global economic conditions might well hold it back in 2023. And I suspect we could see some more price weakness.

Results are due on 20 March, and I think they might give the shares a boost.

Drug development

Ergomed (LSE: ERGO) is my third pick. This time, the share price hasn’t had a big fall. And it’s on a high valuation more in line with some typical growth shares. But I think it might be worth it.

The shares have soared by 500% over the past five years. Gulp! But at least they’ve eased off a bit since the start of 2023.

Forecasts put the P/E at over 30, and that might look a bit high. But it could fall to the low 20s by 2024. Results are due on 21 March, so we should get an idea of how things look.

The last update spoke of a 22.5% revenue growth. The order book is up 23% too. Oh, and there’s no debt.

Hmm, I almost forgot what the firm does. It provides a range of clinical services to big pharma companies around the world. That could be a big win.

I think this is the biggest risk of the three, but I like it. I need to dig deeper.

The post 3 dirt cheap growth shares to buy right now? appeared first on The Motley Fool UK.

Here, I’m going to highlight three AIM shares that appear to have a lot of potential. I think these stocks are worth a closer look right now.

Ergomed

First up is Ergomed (LSE: ERGO). It’s an under-the-radar company that provides specialised services to the pharmaceutical industry. Founded in 1997, it operates in over 100 countries worldwide, serving some of the pharma industry’s biggest players.

A recent trading update showed that this business is performing pretty well at present. For 2022, the company generated revenue of £145.3m, up 22.5% year on year.

Meanwhile, the group said it started 2023 with a positive outlook. It noted that its order book growth provides strong revenue visibility.

We are confident in our future as a leading global provider of specialist pharmaceutical services underpinned by market-leading technology, and look forward enthusiastically to the coming year.

Ergomed management

Recently, Ergomed’s share price has experienced a bit of a pullback. I think this has thrown up a potential buying opportunity. The shares still aren’t super cheap (the P/E ratio is about 25). However, the risk/reward proposition here is now quite attractive, in my view.

Keystone Law

Keystone Law (LSE: KEYS) is the next AIM stock I want to highlight. It’s an innovative law firm that operates a scalable platform model.

Keystone shares have taken a huge hit recently on the back of recession fears. It seems investors are worried that an economic downturn will reduce demand for the company’s services.

A recession is a risk here, of course. However, the recent share price fall seems excessive, to my mind.

In a trading update last month, the company said the favourable market conditions reported in H1 FY2023 continued through H2 (the six-month period to 31 January), as client demand remained “robust”, resulting in another “strong performance”.

The company added it expected both revenue and adjusted profit before tax for FY2023 to be marginally ahead of market expectations.

Keystone Law shares currently trade on a P/E ratio of about 24. I think that’s quite reasonable, given the company’s growth potential.

Calnex Solutions

Finally, check out Calnex Solutions (LSE: CLX). It provides testing and measurement services to the telecoms industry.

This is an AIM stock I’m very bullish on. In the years ahead, the rollout of 5G networks (and the emergence of new technologies such as self-driving cars) is going to create high demand for test and measurement services that help companies prove that new systems operate effectively and conform to rigorous international standards.

As a leader in this space, Calnex is well positioned for strong growth. It’s worth noting that for the six months to 30 September 2022, revenue was up 38% year on year.

Looking beyond the growth potential here, one thing I like about Calnex is the fact that the company is led by founder Tommy Cook. Research shows that founder-led businesses often turn out to be good long-term investments.

This is another stock that isn’t particularly cheap. Currently, the forward-looking P/E ratio is about 26. The valuation risk doesn’t put me off however. I see huge potential here.

The post 3 AIM shares that are worth a look right now appeared first on The Motley Fool UK.

Our monthly Best Buys Now are designed to highlight our team’s three favourite, most timely Buys from our growing list of small-cap recommendations, to help Fools build out their stock portfolios.

Why we like it: “Investing in the pharmaceutical industry has obvious attractions. Healthcare spending remains relatively robust — even during economic downturns — as people always need to see their doctors and take their treatments. Yet investing in the companies making the drugs many of us take can be a very hit-or-miss situation, even if you’re a PhD or MD. This is why we at Hidden Winners have instead long been attracted to the companies providing these pharma makers with the instruments, lab equipment, and support services that they need. Ergomed (LSE: ERGO) is very much in that vein.

“The company provides two main services for its clients. The first is PrimeVigilance, which assists customers (drug-makers) in their pharmacovigilance efforts (the process undertaken during and after drug trials to monitor clinical subjects for adverse events that may or may not be connected to the drug in question). The other division operates under the Ergomed brand and runs clinical research services. Both these services play into a wider trend in the pharmaceutical industry, that of outsourcing non-core tasks to specialist providers. The company ticks a lot of our boxes, being founder-led, in a fairly defensive and growing industry, with its shares trading at what could be an attractive valuation.”

Why we like it now: The recent full-year trading update from Ergomed showed the company recorded another positive year in 2022. Revenue was up 14.5% in constant currency terms to £145.3m (22.5% growth at actual exchange rates) with adjusted EBITDA expected to be in line with consensus estimates of circa £28m. There’s no certainty in life, but with its order books bulging at £295m at year-end and pharmaceutical firms keen to continue investing in drug development in the areas Ergomed focuses on, the short-term outlook for the group looks pretty good to us. Plus with net cash of £19.1m at the end of December, internal cash generation, and undrawn lending facilities of £80m, there is plenty of firepower to continue making bolt-on acquisitions and internal investments no matter the economic cycle. Ergomed isn’t cheap at 30x consensus 2022 earnings, but for a founder-led business catering to fairly defensive markets with a proven ability to provide growth in sales, profits, and actual cash flow, that doesn’t appear to be a ridiculous valuation.

The post Just released: the 3 best small-cap stocks to buy now [PREMIUM PICKS] appeared first on The Motley Fool UK.

Following the outbreak of Covid-19, medical institutions, pharmaceutical companies, and even governments are realising the importance and applications of genomics, both from a diagnostic and treatment perspective.

Consequently, analyst forecasts of the already $21.8bn genomics market predict immense double-digit 18.2% annual compounded growth over the next decade. After all, it could have a transformative impact on both medicine and diagnostics.

Needless to say, that could be a very lucrative opportunity. So, let’s dive into the details about investing in genetics shares.

What are genetics stocks?

Genetics stocks occupy a small section of the biotech industry. As the name suggests, these businesses focus on developing treatments for genetic diseases by repairing or replacing the faulty genes causing the problem.

The genomics industry isn’t particularly new and has been around for decades. But due to the high costs, commercialisation has been challenging and still remains that way today. However, thanks to recent technological advancements, development costs are falling drastically while simultaneously boosting accuracy. 

Therefore, it’s no surprise that research into gene therapy has accelerated, with potentially game-changing treatments entering clinical trials both in the UK and abroad.

Genetics shares can be categorised into three segments:

• Sequencing & analysis – Companies analysing genetic data to detect defects in patients
• Testing & diagnostics – Firms using sequencing data to diagnose genetic diseases
• Gene editing – Biotech groups developing gene therapies that eliminate defects in the genome sequence

While there is some overlap in each category, firms within their respective segments often have different target markets and don’t necessarily compete with each other. However, the level of competition within each category is rising as more businesses seek to capitalise on the massive growth opportunity.

Unsurprisingly, this level of growth comes with a high volume of risk. The medical industry is highly regulated, with each test, device, and drug required to meet rigorous standards. 

Drug development is particularly notorious for its difficulty. In fact, a study by the Biotechnology Innovation Organisation showed that only 9.6% of treatments that make it to phase one clinical trials actually reach the market.

So, it’s hardly surprising that most pure-play genetics stocks are exceptionally volatile. And in some cases, the failure of a clinical trial can be a death sentence for these businesses. But all it takes is one successful treatment to potentially unlock multi-billion-dollar annual revenues.

Top genetics shares in the UK

Let’s explore the top three UK genetics shares in order of market capitalisation as of January 2026.

Genus

Genus is a niche but world-leading genetics sequencing business that focuses on the animal agriculture industry. The company owns directly (and indirectly through partnerships) various herds of pigs and cattle.

Using its sequencing technology, the group tests and identifies key desirable traits among the herd, such as feed efficiency, disease immunity, protein and fat content, and fertility.

Management then generates revenue by selecting the animals with the strongest genetic profile for breeding with farmers’ herds. The end result is healthier offspring, lowering costs for farmers while simultaneously increasing the quality of the end product for consumers.

Oxford Nanopore Technologies

Oxford Nanopore was spun out of the University of Oxford in 2005. Since then, the business has become one of the UK’s largest genetics stocks, developing a proprietary DNA and RNA sequencing technology. It’s the first one of its kind to provide real-time data analysis and rapid testing.

This technology has been embedded into a variety of devices, which the group primarily sells to scientific researchers involved with clinical trials. However, management has also been broadening its horizon, targeting several applied markets. 

The list includes consumer healthcare with its Covid-19 rapid testing solution, agriculture by identifying superior plant genomes, and even the environment by analysing the microbial composition of glaciers.

More recently, with its Covid-testing segment unsurprisingly shrinking, the business primarily sells life-science research tools like DNA and RNA sequencing solutions (MinION, GridION, and PromethION platforms,) driving more consistent revenues and cash flows.

OXB

OXB (formerly known as Oxford Biomedica) is a rising global gene and cell therapy Contract Development and Manufacturing Organisation (CDMO).

The business outsources its capabilities to other drug developers via its LentiVector platform. This drastically reduces the cost of developing gene and cell therapies. So, it’s not surprising that pharmaceutical titans like Bristol Myers Squibb, AstraZeneca, and Novartis are all active customers.

These big pharma clients pay ongoing milestone fees throughout development, as well as a royalty on sales for any drug that makes it to market. Most of the current drug pipeline using LentiVector remains relatively early-stage. However, continued innovation and expansion have given the company a stronger manufacturing presence within the US market as part of its wider expansion strategy.

Investing in the US genetics industry

American genetics stocks have to navigate an equally complex regulatory environment. In the UK, all medical treatments and tests need to be approved by the Medicines & Healthcare Regulatory Agency (MHRA). In the US, approval is required by the Food & Drug Administration (FDA).

The US stock market has plenty of genetics shares listed. Here are some of the leading businesses in this space in order of market capitalisation as of January 2026:

1. Illumina (NASDAQ:ILMN) – $21.6bn market cap
2. CRISPR Therapeutics (NASDAQ:CRSP) – $5.1bn market cap
3. Fulgent Genetics (NASDAQ:FLGT) – $868.0m market cap
4. Pacific Biosciences of California (NASDAQ:PACB) – $667.2m market cap
5. Editas Medicine (NASDAQ:EDIT) – $198.2m market cap

Are genetics stocks right for you?

In 2026, genetics stocks continue to show tremendous long-term growth potential. But they remain highly volatile stocks making them a risky endeavour. Just looking at these eight UK and US genetics shares demonstrates that perfectly. 

Needless to say, individuals thinking about investing in genetics stocks need to have a high risk tolerance. While genetic research may have been around for decades, the same can’t be said for most of the stocks listed today.

Even the multi-billion-pound market cap stocks on this list are still executing fundraising efforts to fuel growth. And with a generally high failure rate within this industry, there’s a high chance most will fail in their quest to capture the multi-billion-dollar market opportunity.

Needless to say, prudent due diligence, careful research, and a diversified investing approach are critical when investing in such high-risk, high-reward sectors. By owning a basket of companies in this area, the odds of finding the future industry leader climb higher.

The post Investing in Genetics: Top UK Genetics Stocks of 2026 appeared first on The Motley Fool UK.

The plan for big returns from investing

The esteemed growth investor Jim Slater said elephants don’t gallop. In other words, shares in large-cap companies can’t rise as quickly as share in smaller-cap companies. Other successful investors have echoed that sentiment. Though there’s nothing wrong with big companies, and I own many myself, smaller companies have more potential to grow. 

It’s because smaller growth shares tend to be more agile and innovative, as well as more likely to be acquired, that they are potentially rewarding investments.

The flip side, of course, is that sometimes their share prices are more volatile. They can lack the balance sheet strength and diversification of some of the bigger companies.

Also, growth shares tend to reinvest in their business so many don’t pay out dividends, although of course, some do. Generally, I’m happy though with reinvestment into the business if it is done well and helps the company grow.  

Smaller UK growth shares make up part of my portfolio, as I don’t want to just invest in FTSE 100 dividend paying stocks.

Examples of UK growth shares

Ergomed is one example of a UK growth share that I potentially would invest in. Between 2016 and 2020, revenues went from around £39m to over £86m. At the same time, operating profit went from being practically negative to up to £13.5m. To me, this is impressive. This rate of growth, along with the shares already having risen 500% in just a few years, are two of the factors that make me think the share price can rise strongly. 

Performance at the pharmaceutical industry services company continues to be strong. 2020 was a very good year and I expect the future is very bright for the group. The risks with this share are that it overpays for acquisitions (often this hurts shareholder returns) and that its investment in drug development doesn’t work out as planned.

I also like the look of retail logistics company Clipper Logistics (LSE: CLG). It has benefitted from the move to e-commerce – a trend that is set to continue even once lockdown lifts.

Customers want to shop online more and more because it is convenient. There’s a structural change in retail that benefits Clipper Logistics and should therefore help its share price continue to rise.

The management at Clipper Logistics has been able to upgrade their forecasts, which is something I always want to see when it comes to a growth share.

I think past performance provides reasons for optimism about the future. It’s why a 500% share price rise could be on the cards. Between 2016 and 2020, revenues nearly doubled, going from £290m to more than £500m. Operating profit more than doubled at the logistics company, from £14.5m to £31.5m. Any improvement in margins at the e-commerce company could be transformational and see the shares reate upwards. 

The risk is that there’s a slowdown in e-commerce following the pandemic which could hit sales growth. Or that the shares are seen as too expensive on a price-to-earnings of 38, which is quite high for any business, let alone a logistics business. 

The post How I’d look to turn a £1,000 investment in UK growth shares into £5,000 appeared first on The Motley Fool UK.

Two unique biotech companies have caught my attention, both of which seem to have incredible potential for growth. Would I buy them now?

A biotech stock breeding success

Fishermen have been struggling to keep up with the rapidly rising demand for fish through traditional fishing methods. To keep up, many businesses are turning towards aquaculture. That’s an industry where the fish are bred, raised and eventually harvested for consumption, rather than catching them wild.

Between 1990 and 2018, aquaculture’s total fish production increased over 520%. And this created a very favourable environment for Benchmark Holdings (LSE:BMK).

The biotech stock has three operations. Its genetics department uses genomics to breed fish and improve their resistances towards most diseases. The second manufactures specialised food that improves health and reduces mortality. The final segment focuses on developing specialised medicine to treat infected salmon.

For example, sea lice are a plague that costs salmon breeders nearly $1bn worldwide each year. However, Benchmark successfully created an award-winning solution that eliminates sea lice without harming the fish.

Combined, the company enables farmers to maximise their efficiency and yield. The stock has a strong balance sheet and clearly operates in a market growing at exceptional rates.

However, there are some considerable risks. The business is still young and has yet to generate any profits. What’s more, its portfolio of products, while impressive, remains quite limited. As such, it looks overly dependent on certain key products in my eyes.

Providing a path through clinical trials

The pharmaceutical industry is one of the most highly regulated sectors in the market today. And while the regulations protect patients’ health, they also introduce complications for pharmaceutical companies.

Fortunately, Ergomed (LSE:ERGO) has a solution. The biotech stock is a global provider of specialised clinical trial services for the drug development industry.

Its pharmacovigilance (PV) segment performs drug safety monitoring throughout all stages of development, as well as after a product enters the market. The firm also provides research management services through its clinical research outsourcing (CRO) department. These services include planning, monitoring, and reporting of clinical trial data.

The PV and CRO industries are expected to grow by 11.6%, and 7.5%, respectively, over the next five years. Needless to say, I think this presents a considerable investment opportunity.

But there is one significant problem I’ve spotted for this biotech stock — Brexit. As the UK is no longer part of the EU, the regulatory environment for drug development has already begun to change. And this continues to create complications and delays throughout the drug development process.

Consequently, any delays in clinical trials will impact Ergomed’s revenue, at least temporarily. However, the degree of impact should be limited as the firm generates most of its revenue outside the UK. 

The bottom line

Both of these biotech stocks have performed exceptionally well over the last 12 months. Combined, their share prices have increased by over 100%!

And while I see enormous potential in both businesses, there remain several unknown factors that make me slightly cautious. Therefore, I’m not adding either stock to my portfolio just yet. But I’m definitely going to keep an eye on them.

The post 2 UK biotech stocks to watch in 2021 appeared first on The Motley Fool UK.

But I’m also keen on some small-cap shares in the wider pharmaceutical sector. For example, today’s audited full-year results report from Ergomed (LSE: ERGO) is full of positives. And the share price has risen a bit today too.

Doing its bit for the coronavirus pandemic

The small-cap company provides specialist services to the pharmaceutical industry. And on 18 March, it announced its involvement in a clinical study aimed at finding a treatment for patients with Covid-19, who have developed serious respiratory complications. The study is sponsored by the Papa Giovanni XXIII Hospital in Bergamo, Italy, and supported by EUSA Pharma (EUSA).

That’s a small part of the company’s activities, which span “all phases” of clinical development, post-approval pharmacovigilance, and medical information. And today’s figures reveal to us some patterns of fast growth within the business. In 2019, revenue grew by just over 26% compared to the prior year, and adjusted EBITDA shot up by a little over 440% to £12.5m. Looking ahead, the order book of future contracted revenue rose by a just under 14% to a smidgeon above £124m.

Executive chairman Dr Miroslav Reljanović described in the report how 2019 has been a “transformational” year for Ergomed.  He reckons the business performed “strongly” and the acquisition of Ashfield Pharmacovigilance after the end of the period was a “major strategic step” for the company in the US.

Growth on the agenda and strong finances

Growth is on the agenda, but the firm is monitoring “closely” the escalation of the coronavirus outbreak. Reljanović thinks Covid-19 poses an “unprecedented” global healthcare challenge. And he hopes Ergomed can use its “expertise and proven capabilities” to advance drug development and improve outcomes for coronavirus patients.

Meanwhile, the balance sheet looks strong with no borrowings. Cash and equivalents rose by almost £175% in the period to just over £14m, which compares with lease liabilities of just under £5.5m.

I reckon cash inflow has pushed profits higher, which combines with the strength of the firm’s finances to provide a solid base for further expansion. But, just to make sure, the company agreed a new £30m credit facility with its bankers to fund its growth strategy and to help with any challenges that may arise because of the coronavirus.

My guess is we can expect further progress abroad in the years ahead. In 2019, around 42% of revenue came from mainland Europe, the Middle East and Africa, 37% from North America, 19% from the UK, 2% from Asia, and a tiny comparative amount from Australia.

Meanwhile, with the share price close to 340p, the forward-looking earnings multiple for 2020 sits near 18. That strikes me as fair for a company with decent growth prospects.

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Cogito ERGO sum

Specialised pharmaceutical services and drug development company Ergomed (LSE: ERGO) is up a healthy 4% after reporting preliminary full-year results for calendar year 2017 this morning. Its numbers showed impressive 36% growth in net service revenue, driving total revenue growth of 21%.

New business wins rose 29% to £54m, with its contracted backlog of £88m up more than 25% from £70m one year earlier. The £85m market cap minnow also reported positive PeproStat Phase II results. CEO Stephen Stamp hailed “another very strong year” for its pharmacovigilance business as it continues to outperform a fast-growing market. The group aims to become a leading global provider in this field by 2020. 

Ergo to grow

Ergomed is now looking to grow both organically and through strategic acquisitions, having refined its corporate strategy to focus on services businesses. In February, an institutional placing raised £3.9m for further acquisitions and working capital.

My Foolish colleague Peter Stephens alighted on the stock last month, praising its rapid growth potential and lowly forecast PEG ratio of just 0.3 (it now stands at an even lower 0.2). City analysts are optimistic about its prospects for this year, predicting whopping earnings per share (EPS) growth of 172% in 2018, then 31% in 2019. That will shrink its current heady valuation of 44 times earnings to a more amenable 15.8.

This could be the start of something exciting after two consecutive years when EPS fell 28% and 38%. This one could fly, but brace yourself, as small growth pharma firms like this one are inevitably risky.

We were giants

Pharmaceuticals giant AstraZeneca (LSE: AZN) is at the other end of the scale with a market cap of a dizzying £64bn. But its recent share price history has also been choppy as investors grit their teeth and wait to see if chief executive Pascal Soriot’s long-term pipeline refreshment strategy will send profits gushing.

His turnaround strategy still has some way to run and 2018 could prove bumpy, with EPS forecast to drop 18% this calendar year. However, it is looking to accelerate new product launches, and this should help fuel a predicted 13% EPS growth in 2019. Operating margins are also expected to improve, from 18.2% to 22.9%.

Woodford sells

Not everyone is impressed by Astra’s prospects, long-term backer Neil Woodford has recently been selling down his stake. Cynics might suggest this makes now a good time to buy, since everything Woodford touches turns to dust at the moment, but that would be cruel.

I was disappointed to see it trading at a valuation of 20.3 times earnings, and this could also be a key reason for Woodford’s sale. AstraZeneca’s forecast yield of 4.1% is of course tempting, and it remains a great long-term hold for income and capital growth, if you have the patience to stay the course. However, today’s valuation makes it look expensive given current uncertainties, and you may find a better buying opportunity further along the pipe.

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