2 cheap growth stocks I'd buy for the long term
Despite the recent pullback across the stock market, investor sentiment is generally upbeat. Certainly, the FTSE 100 has dropped by over 10% since its all-time high of a few months ago, but we are technically still in a bull market which could have further to run.
Therefore, buying stocks after the recent fall could be a wise move. They may offer greater volatility than expected, but their margins of safety now appear to be relatively wide. With that in mind, here are two stocks that could be worth a closer look today.
Reporting on Monday was regenerative medical devices company Tissue Regenix(LSE: TRX). The performance of the business in 2017 was relatively encouraging, with its revenue increasing more than three-fold to £5.2m. It was able to launch additional product lines, addressing surgical reconstructive procedures and dental applications.
The company's £40m equity fundraise was successful and it was able to complete the acquisition of CellRight Technologies in August 2017. This has the potential to boost its financial performance over the medium term, with the stock expected to move into profitability in the next financial year. This follows a long period of lossmaking and could help to improve investor sentiment.
Although Tissue Regenix trades on a forward price-to-earnings (P/E) ratio of around 60, the company could deliver earnings growth in future years. It is entering a new phase of commercialisation which could produce a step-change in financial performance. As such, the company could prove to be a strong performer within what remains a relatively enticing wider healthcare industry.
Also offering upbeat investment potential is Hikma Pharmaceuticals(LSE: HIK). The company is in the midst of a challenging period which has seen its bottom line decline in each of the last three years. This has contributed to a fall in its share price of 45% in the last year. And with it due to report a further decline in its bottom line of 11% in the current year, its short-term performance could be somewhat disappointing.
However, over the medium term the company could experience an improvement in its share price performance. It is forecast to report a rise in earnings of 14% in the next financial year and this may lead to a change in investor sentiment. Since Hikma has a price-to-earnings growth (PEG) ratio of just 1.1, there seems to be significant upside potential on offer. As such, it could prove to be a strong turnaround play.
The healthcare industry could become increasingly popular in future. If the wider stock market remains volatile then investors may seek stocks that could offer lower positive correlation with the index. As such, buying Hikma right now could be a profitable move over the long run, while providing some protection against share price falls in the short run.
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Peter Stephens owns shares of Hikma Pharmaceuticals. The Motley Fool UK has recommended Hikma Pharmaceuticals. 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.