We investors have seen a lot happen in the stock market over these short six months. We have witnessed new highs, political instability and a Greek default is looking likely, yet the FTSE 100 seems to have moved sideways. Now that might change as we move into the second half of the year, but some stocks have seen their share price increase significantly – let’s take a look at three of them to see if they have further to run….
A Good Year for Spinoffs….
Indivior (LSE: INDV) was listed as a new company at the end of last year: it is the former pharmaceutical division of Reckitt Benckiser. The shares began life on the stock exchange trading at 150p per share in December 2014. The shares currently change hands at around 238p — that’s not a bad gain in just over six months. As you can see from the chart, the stock has trounced the FTSE 100.
So, what has caused its outperformance? It is possible that the market likes the current price to earnings ratio. On a trailing 12-month (TTM) basis, the shares trade on a P/E of just over 7. This means that it is currently one of the cheapest stocks in the market. As we know, however, the market looks forward. The company’s major product, Suboxone Film (used to treat people with an opioid dependence), came off-patent in 2010. As one would expect, this has caused earnings to fall from $614 million in 2011 to $363 million in 2014, while earnings are expected to fall further as the company faces increased generic-drug competition going forward, but it seems that earnings are not falling quite as quickly as analysts had predicted.
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It could also be the current product pipeline of new products to treat opioid addiction and other illnesses over the next five years that has raised investors’ attention.
Opioids are prescribed to treat acute pain; however, there is a plethora of opioid overdoses, and Indivior has several products in its pipeline that could treat opioid addiction and overdoses:
- Monthly Buprenorphine Injection — this injection would be used to treat opioid addiction. Phase III trials were due to commence in 2015; if all goes well, the product could be launched in 2017.
- Nasal naloxone – this is a medication used to counter the effects of opioid overdose, delivered via the nose. It could be exported beyond the US next year, with obvious benefits.
The company has several other products at various other stages of testing prior to regulatory filings. Should these be given the all-clear, I would expect the market to re rate these shares accordingly.
As I type, the shares trade at just over 14 times forecast earnings and are expected to yield nearly 3% — this makes them one of the cheapest in the sector. In my view, they are worth a closer look.
Pasty Perfect…
Greggs (LSE: GRG) has come a long way since it warned on profits in 2012. Since then its shares have more than tripled (including dividends) since those sub-400p lows, as management set about transforming the business to appeal to a wider audience. And appeal it has – at its most recent update to the market in April, covering the 16 weeks to 25th April, management announced that:
- Like for like sales were above management expectations, at 5.9%;
- 69 store refits (seen as a significant driver of growth) had been completed;
- A net 6 new shops had been opened;
- Product and customer service initiatives coupled with higher customer disposable income continued to drive growth;
- As the icing on the Belgium bun, shareholders could also look forward to a special dividend of 20 pence per share, to be paid in July.
This seems to me to be a business that has regained its appeal to its existing customers and attracted new ones, combined with customers with a little extra cash in their pockets.
As we can see from the chart, the shares have trounced the index over the last year. However, with the shares exchanging hands on a 12-month forecast PE of over 23 times earnings, and expected to yield just over 2%, I currently think that they lack a margin of safety to make them a good investment at these prices.
All In The Mind?
For those of us who are slightly more risk-tolerant, some shares have enjoyed an exceptionally strong run. One of these shares is Allied Minds (LSE: ALM).
For those not familiar with the company, it is a science and technology development and commercialisation company. It forms, funds, manages and builds products and businesses based on technologies developed at universities and federal research institutions. The company serves as a diversified holding operation that supports its businesses and product development with capital, central management and shared services – in short, this company nurtures new technology through to commercialisation.
As you can see from the chart, the share price has soared over the last 12 months, cooling off slightly after hitting new highs recently. But are they worth buying? Well, Neil Woodford thinks so –holding over 50 million of the shares, which is over 23% of the company via his equity income fund and Patient Capital Trust.
For my money, however, I’d like to see more in the way of earnings coming through before deciding to place my hard-earned capital into the company – that doesn’t mean that the shares will collapse. Indeed, as investors we can often see stocks like these hit fresh highs, as the market gets excited about the next wonder-drug. Until I see the excitement turn into cash, I’m not planning on doing any further research at the moment.
