In the long run, though, the retailer may offer turnaround potential. This could help to improve its dividend growth outlook. As such, it could be worth buying alongside a dividend growth stock which released positive news on Monday.

Improving outlook

The stock in question is animal healthcare specialist Eco Animal Health (LSE: EAH). It released interim results which showed a rise in sales of 9% to £31.7m. Its pre-tax profit moved 15% higher to £6.8m, while it was able to deliver a 25% increase in the interim dividend to 4p. Alongside this, it has declared an additional distribution of 3.5p per share.

During the period, the company recorded a recovery in Latin America. It also sought to invest in new routes to market and product development. Demand for Aivlosin continued to grow strongly, while new marketing authorisations were gained in Vietnam, with further authorisations expected in Canada, USA and South East Asia.

With Eco Animal Health forecast to post a rise in earnings of 45% in the current year, followed by additional growth of 11% next year, it could have scope to raise dividends. It has done so at an annualised rate of 22% over the last four years, which suggests that its current dividend yield of 2.4% could become increasingly impressive.

Uncertain future?

As mentioned, the near-term prospects for Marks & Spencer could be somewhat difficult. Brexit is dominating news headlines at present, and this situation may continue over the coming months. Consumers may therefore decide to hold off on certain purchases, or trade down to no-frills retailers which may offer better value for money. In other words, consumers may become less interested in convenience, quality or the shopping experience, and more interested in price.

Since Marks & Spencer is not a budget retailer, it may naturally experience a slowdown in sales growth. At the same time, it’s being forced to adapt to an increasingly flexible and nimble retail segment which is providing consumers with an extremely impressive level of service. Investment in this area should help the company to become more competitive, but it may take time for it to catch-up to more advanced rivals.

With a 6.7% dividend yield, Marks & Spencer could offer a sound income return in the near term. In the long run, its payout ratio of 72% appears to be affordable, while its investment in online may provide it with a growth catalyst. Therefore, its total return could be impressive in the long run, with it seeming to be a recovery stock at the present time.

The post Forget a cash ISA! I’d rather pick up 6%+ from FTSE 100 dividend share Marks and Spencer appeared first on The Twelfth Magpie.

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Peter Stephens 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.

However, within some sectors there remain good value growth stocks. Healthcare is one such industry, and here are two stocks that could help you on your journey to making a million.

Improving performance

Reporting on Wednesday was Eco Animal Health (LSE: EAH). The global animal healthcare specialist’s first-half results showed a rise in sales of 8%, while adjusted EBITDA (earnings before interest, tax, depreciation and amortisation) moved 35% higher. The upbeat results were partially due to strong growth in demand for Aivlosin. The company saw a strong performance across all of its major geographic areas, with the exception of Latin America, excluding Mexico.

The firm continues to invest in new routes to market, product development and people in order to support future growth. With new marketing authorisations gained in America and Malaysia, its future prospects appear to be bright. In fact, in the current year Eco Animal Health is forecast to report a rise in its bottom line of 42%. This puts it on a price-to-earnings growth (PEG) ratio of just 0.9, which suggests that its share price could move significantly higher.

With it having significant diversity in terms of geographic exposure, it could be a good stock to own ahead of Brexit. Its financial performance is less highly correlated to the outlook for the wider economy, which may reduce its risk profile yet further. This could make its risk/reward ratio hugely attractive.

Improving outlook

The share price performance of pharmaceutical company Shire (LSE: SHP) has been disappointing of late. It has fallen by 17% during the last year as investor sentiment has declined following the company’s combination with Baxalta. There have been doubts surrounding how well the two companies fit, and this uncertainty could have negatively impacted the share price performance.

However, with Shire forecast to deliver a rise in its bottom line of 7% in the next financial year, it could be worthy of a higher valuation. It currently trades on a price-to-earnings (P/E) ratio of just 9.5, which equates to a PEG ratio of 1.4 when combined with its earnings growth rate. This suggests there is a wide margin of safety on offer that could mean the stock is able to offer limited downside as well as high upside potential.

Certainly, Shire lacks income investing appeal at the present time. Considering its size, a dividend yield of 0.7% is relatively disappointing. However, with future prospects being positive and it having such a low valuation, it could deliver a rising share price in the long run.

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Peter Stephens owns shares in Eco Animal Health. The Motley Fool UK has recommended Shire. 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.

The manufacture and sale of animal feed and drugs is probably more profitable than the human sides of these businesses because there’s less competition and the market is much more substantial. 

Eco Animal Health Group (LSE: EAH) is a great example. Over the past five years, as the company’s revenue has expanded by just over 100%, pre-tax profit has exploded 310% and earnings per share have risen 210%. On the back of this growth, shares in the company have gained 285% over the past three years. 

Expanding into new markets

Eco sells animal health products around the world, and as the company figures show clearly, this is a lucrative and rapidly expanding business. 

The firm’s latest product release is Aivlosin, a drug to control of both acute and chronic respiratory and enteric diseases. In the past year, Eco has received approval to sell this treatment in Egypt, Turkey, the US, Malaysia, Mexico, and Brazil. 

These new approvals should allow the group to continue on its growth trajectory. City analysts are predicting earnings per share growth of 42% for the year ending 31 March 2018, following earnings growth of 68% for the last fiscal year. 

So, even though the shares look expensive at 25.7 times forward earnings, when you factor in Eco’s growth, the stock is actually cheap. Specifically, the shares trade at a PEG ratio of 0.6. A yield of 1.3% is also on offer and the payout is growing steadily. 

Investing for the future 

Benchmark Holdings (LSE: BMK) could be a future giant. Even though the company is expected to report revenues of £135m (up 24% year-on-year) for the year ending 30 September 2017, profit remains elusive and a loss of £12.5m is expected. Still, this performance is a reversal of fortunes for the group after warning on sales in the first half. 

However, the company has a medicines and vaccines pipeline of 46 products, of which five are in regulatory phase, and 10 are in pre-regulatory development trials. Benchmark is essentially two businesses, a nutrition business (animal feed) and a pharma one. The latter is growing rapidly with sales up 49% to the end of September according to a trading update from the company published today. The feed business is growing at only half this rate. 

A course for growth 

As Benchmark’s new products hit the market, the group’s growth should explode and this will be good news for investors. So, while the business might not look to be a great buy today (as it is currently lossmaking) over the next decade or so, as new treatments hit the market, earnings should surge. 

I’m more positive on its outlook than most other early-stage pharma companies in the same position as the business is already producing a steady stream of revenue, which will support it through the development stage. 

If the firm can bring all of the products currently in its pipeline to market, this certainly looks to be one stock you might regret not buying.

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Rupert Hargreaves has no position in any share 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.

With that in mind, here are two stocks which may be viewed as relatively defensive by some investors. However, they could deliver stunning growth over a sustained period.

Robust outlook

Reporting on Thursday was Dechra Pharmaceuticals (LSE: DPH). The company’s year-end trading update was in line with expectations, with a good performance from its core business. This was complemented by the successful integration and performance of acquisitions. Revenue for the year was 28% higher at constant exchange rates. This was driven by a 93% rise in North America Pharmaceuticals growth, while in Europe growth was more subdued at 7%.

During the year, the company has achieved numerous product registrations. They have included approval by the FDA for the first major product from the Putney pipeline following its acquisition. The Putney products have benefitted from the integration of the sales and marketing efforts following acquisitions. This was a key reason behind the company’s North American revenue growth.

Looking ahead, Dechra is expected to increase its bottom line by 16% in the current year. This is around twice the growth rate of the wider index, and yet the company’s shares continue to offer a wide margin of safety. They trade on a price-to-earnings growth (PEG) ratio of just 1.5, which suggests that there is upside potential on offer.

As well as this, the business could be viewed as defensive due to its low positive correlation with the wider index and economy. Therefore, given the uncertainty present in the global economy, Dechra could prove to be a sound buy.

Improving performance

Also offering investment appeal within the healthcare sector is Eco Animal Health (LSE: EAH). The company is forecast to record a rise in its bottom line of 21% in the current year. This puts its shares on a PEG ratio of only 1.5, which suggests that they could deliver further gains even after they have risen by 37% in the last year.

As well as its upside potential, Eco is also becoming a more attractive dividend share. In the last four years it has increased dividends by 78%. Over the next two years it is forecast to raise them by a further 29%. This puts the company on a forward dividend yield of 1.5%, but with dividends covered 2.4 times by profit there could be additional inflation-beating growth on offer in the long run.

As with other healthcare companies, Eco could offer diversity for a Foolish portfolio. Its lack of cyclicality and global exposure suggest that its shares could continue to perform well even if the UK economy experiences a difficult period.

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Peter Stephens owns shares of ECO Animal Health Group. 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.

Today, I’m running the rule over specialist firm ECO Animal Health (LSE: EAH), which has this morning released its full-year results for the year ended 31 March. The stock has performed well over the last two years, so can this run continue?

Business description  

ECO manufactures and supplies animal health products, specialising in the development and marketing of medicines for the control of disease in livestock and companion animals. The £400m market cap company has operations in the UK, Europe, North America, Latin America, Africa and the Middle East and the majority of its sales are in currencies other than sterling. The company’s flagship product is Aivlosin, an antibiotic that treats a range of diseases in pigs and poultry.
 
It has enjoyed a strong rise in profitability in recent years. For example, for the five-year period to 2016, revenue increased from £27.1m to £47.1m, a compound annual growth rate (CAGR) of a healthy 11.7%. The company’s operating margin ticked up steadily in this time, resulting in net profit rising from £1.59m to £6.04m, a CAGR of over 30%.
 
Unsurprisingly, with profitability rising significantly, the company’s share price has followed a similar trajectory, and over the last five years the stock has risen from around 230p to 600p, a gain of an impressive 161%.
 
So are there further gains to come? Let’s look at the full-year results for an insight.

FY2017 results

This morning’s figures certainly look impressive. Revenue for the year increased 30% to £61.4m, and adjusted EBITDA rose 54% to £17.1m. Earnings per share jumped to 16.4p from 9.7p last year and the company increased its dividend payout by 25% to 7.1p per share. Cash generated from operations rose to £13.1m and left the company with a cash balance of £21m at the end of the year.
 
Management sounded confident about the future, with Chairman Peter Lawrence commenting: “ECO has started the current year strongly with revenue ahead of the previous year. The business is robust with a sound, debt-free balance sheet and this, coupled with our strong cash generation, will allow us to capitalise on market opportunities as they arise. We look forward with confidence.” 

Valuation

So it appears to be enjoying strong momentum at present, but is the valuation attractive right now? 

Today’s earnings per share figure places the company on a trailing P/E ratio of a high 37.8. With analysts forecasting earnings of 17.3p per share for FY2018, the forward-looking P/E ratio is a lofty 35.8. At that valuation, I’m not seeing a huge amount of value if I’m honest. The company’s growth certainly looks appealing, however the P/E ratio is just a little too high to interest me right now and doesn’t leave much room for error. For this reason, I’ll keep ECO Animal Health on my watchlist for now and monitor the stock for a pull-back in the share price.

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Edward Sheldon owns shares in GlaxoSmithKline. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. The Motley Fool UK has recommended AstraZeneca. 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.

Strong growth

Eco Animal Health’s first half report shows that its current strategy is working well. Revenue has increased by 25%, while pre-tax profit is up 97% versus the same period of the previous year.

There was strong performance in the US and China, with demand for Aivlosin still strong. This caused a rise in its sales of 15%, while EU Aivlosin approval allowed the submission of regulatory filings for key global egg producing markets. And with heavy invest investment in R&D, Eco Animal Health is well positioned to deliver further growth over the medium term.

Encouragingly, cash generation continues to be strong, with the company now having a net cash position of £18.5m. This provides it with the financial flexibility to not only survive during potentially challenging periods, but to also invest in future growth or even in M&A opportunities.

In fact, in the current year Eco Animal Health is forecast to record a rise in its earnings of 34%, followed by growth of 17% next year. This puts it on a price-to-earnings growth (PEG) ratio of 1.9, which indicates that its shares could move higher.

A challenging period

The performance of Eco Animal Health contrasts with that of AstraZeneca. The latter is continuing to endure a difficult period, with a loss of patents on key, blockbuster drugs hurting its financial performance. Although an aggressive acquisition programme has slowed the decline in its bottom line, in the current year AstraZeneca is still expected to report a marginal fall in earnings, followed by a slump of 9% next year.

As such, it’s relatively likely that Eco Animal Health will outperform its larger peer in 2017. It has superior growth prospects and investor sentiment is therefore likely to improve more rapidly than for AstraZeneca.

Outlook

Despite this, AstraZeneca remains a sound long-term buy. Its acquisition programme should deliver positive bottom line growth over the medium term, while its price-to-earnings (P/E) ratio of 12.5 indicates that it offers excellent value for money. It could therefore begin to be rated upwards by the market as its financial performance begins to improve in future years.

In addition, with it having a yield of 5.2% which is covered 1.5 times by profit, it remains a sound income play. Certainly, it’s superior in a dividend sense to Eco Animal Health, which yields 1.2% from a dividend covered 2.1 times by profit. However, regarding which stock will rise by the greatest amount in 2017, Eco Animal Health seems to be the stronger of the two.

The post Why Eco Animal Health Group Plc is set to outperform AstraZeneca plc in 2017 appeared first on The Twelfth Magpie.

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Peter Stephens owns shares of AstraZeneca and ECO Animal Health Group. The Motley Fool UK has recommended AstraZeneca. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Genus’s customers endured a rather mixed period from July to November. Strong pig production volumes in some markets such as the US caused substantially lower pig prices in those regions. However, in other regions such as Europe and China, pig prices either improved or remained strong. This supported robust demand for Genus’s PIC genetics as well as volume growth.

Meanwhile, dairy prices began to improve on a global basis. However, they remain at levels where a significant proportion of dairy farmers are unprofitable. Beef prices in the US declined throughout the period, which meant that Genus’s customers adopted a more cautious approach to demand. These challenging conditions led to lower semen volumes for Genus ABS, while IVB continued to grow embryo volumes.

Looking ahead, Genus is forecast to increase its earnings by 6% in the current year. While this rate of growth is roughly in line with that of the wider market, Genus trades on a high-growth valuation that its forecasts don’t reflect. For example, Genus has a price-to-earnings (P/E) ratio of 29.8 and when this is combined with its rating, it equates to a price-to-earnings growth (PEG) ratio of 5. This indicates that Genus is overvalued at the present time.

Small is beautiful?

That’s a key reason why fellow healthcare company Eco Animal Health has huge appeal in comparison. Unlike Genus, Eco Animal Health is expected to record strong growth in both the current and next year. Its earnings are expected to rise by 34% this year and by a further 17% next year. When combined with its P/E ratio of 51.2, this equates to a much more appealing PEG ratio of 2.

Certainly, Eco Animal Health is a smaller business and lacks the size, scale and financial firepower of Genus. However, it has an excellent record of delivering above average growth over a long period. For example, in the last five years Eco Animal Health’s earnings have risen by 130% and it’s not unreasonable to expect them to record a similarly strong growth rate over the next five years.

While Genus is a high quality company that has excellent long-term growth prospects, its valuation is too high to merit purchase at the present time. That’s especially the case since an upgrade to its guidance may not be on the cards as the pig and dairy markets offer rather mixed outlooks. Therefore, for long-term investors buying Eco Animal Health is the logical solution, while also waiting for an improved share price for Genus before buying a slice of it.

The post Why I’d buy this small-cap over Genus plc despite today’s positive results appeared first on The Twelfth Magpie.

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Peter Stephens owns shares of ECO Animal Health Group. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

One company that has stuttered somewhat on the growth front in recent years is AstraZeneca (LSE: AZN). In fact, its bottom line has fallen heavily as a loss of patents on key drugs has hurt sales, but with an acquisition programme set to deliver growth over the long run, AstraZeneca could become a more in-demand stock in the coming years.

While its growth rate has been disappointing in the past, AstraZeneca has remained a strong defensive play. It has a beta of 0.9 and with its earnings being less dependent on the wider economy than is the case for many of its index peers, the company’s shares could become more in demand. That’s especially the case if uncertainty surrounding the global economy increases and investors decide to adopt a more risk-off attitude in the coming months.

Growth and more growth

While AstraZeneca’s bottom line has fallen in recent years, Advanced Medical Solutions (LSE: AMS) has been able to record a rise in its earnings in each of the last five years. In fact, they’ve increased at an annualised rate of almost 13% during the period and looking ahead, further growth is on the horizon.

Certainly, a forecast of 3% earnings growth for the year to 31 December 2016 may be somewhat disappointing, but with an 8% increase forecast for next year, investor sentiment towards Advanced Medical Solutions could improve. That’s especially the case since its most recent annual results showed that it’s making good progress across all parts of its business. Notably, its LiquiBand tissue adhesive range recorded strong performance in the US, while its upbeat R&D product pipeline could allow it to deliver impressive earnings growth over the medium-to-long term.

Bright future

Meanwhile, Eco Animal Health (LSE: EAH) has delivered a stunning share price rise since the turn of the year. The animal pharmaceuticals specialist is up by 20%, at least partly due to multiple pieces of positive news flow regarding regulatory approval for the company’s products. They should provide Eco Animal Health with improved profit growth prospects in future years, with its forecasts for the next two years indicating that further share price rises are on the horizon.

For example, Eco Animal Health is expected to record a rise in its bottom line of 19% in the current year, followed by a further increase of 18% next year. These figures have the potential to cause a step change in investor sentiment towards Eco Animal Health and with its shares trading on a price-to-earnings growth (PEG) ratio of just 1.3, there’s significant upside potential on offer.

The post Are AstraZeneca plc, Eco Animal Health Group plc and Advanced Medical Solutions Group plc the top healthcare picks right now? appeared first on The Twelfth Magpie.

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Peter Stephens owns shares of Advanced Medical Solutions, AstraZeneca, and ECO Animal Health Group. The Motley Fool UK has recommended AstraZeneca. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Eco Animal Health’s performance so far in the second half of the year has been strong, with the acquisition of distribution rights in Southeast Asia from last year having a positive impact on the company’s balance sheet. And, with sterling being relatively strong, its results are even better when currency fluctuations are factored out.

Looking ahead, the company has the potential to beat the wider market in 2016 even though its shares have risen by almost 50% in the current calendar year. How so?  Eco Animal Health is forecast to increase its bottom line by a massive  77% this year and a further 20% next year. This puts it on a price to earnings growth (PEG) ratio of just 1.1 which indicates that further excellent gains lie ahead.

Future focus

Also having the potential to beat the index next year is Centrica (LSE: CNA). Clearly, its performance is rather less impressive than that of Eco Animal Health as it’s at the beginning of a long journey that will see it refocus the business towards becoming a pureplay domestic energy supplier. This has the potential to rapidly improve investor sentiment – especially if Centrica can begin to deliver on the asset sales and cost savings that it said it will seek in the years ahead.

With Centrica trading on a price to earnings (P/E) ratio of just 11.9, it offers considerable upward rerating potential. As well as the delivery on its strategic goals having the potential to be a positive catalyst on its share price, Centrica’s dividend potential also has the scope to lift investor sentiment. For example, it currently yields 5.7% from a dividend that’s covered 1.5 times by profit. And with interest rates set to remain low, this could hold huge appeal for income-seeking investors in 2016 and beyond.

Risks and rewards

Meanwhile, the resources sector continues to offer major bargains. For example, support services company Petrofac (LSE: PFC) is forecast to increase its bottom line by 174% next year which, when combined with a P/E ratio of 22.8, equates to a PEG ratio of only 0.1. This indicates that the company’s shares could be due for a significant upward rerating during the course of 2016.

But there are some negatives, too. There’s the potential for downgrades to Petrofac’s earnings outlook. That’s especially the case with the future of the resources sector being exceptionally uncertain at the present time. And with capital expenditure among sector incumbents being slashed fast, the reality is that Petrofac’s bright future could become a little less shiny over the coming months.

While this is a risk for investors, the reality is that its risk/reward ratio remains hugely favourable. So, while volatility is almost guaranteed, Petrofac also has a very good chance of outperforming the wider index during the course of 2016.

The post Will Centrica PLC, Petrofac Limited And Eco Animal Health Group Plc Beat The Market In 2016? appeared first on The Twelfth Magpie.

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Peter Stephens owns shares of Centrica, ECO Animal Health Group, and Petrofac. The Motley Fool UK owns shares of and has recommended Petrofac. The Motley Fool UK has recommended Centrica. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

And, while I believe that Blinkx could prove to be an excellent buy for long-term investors – especially while it has a large cash pile and a price to book (P/B) ratio of just 0.8 – there are three small-cap stocks that I would buy ahead of it.

Profitability

A key reason why I’m more bullish on the likes of animal drug company, Eco Animal Health (LSE: EAH), and PR/advertising play, M&C Saatchi (LSE: SAA), is that they are highly profitable and have been for a number of years. Call me old-fashioned, but I give considerable weight to a strong track record of profitability and, with both stocks having had bottom lines in the black in each of the last four years, they appear to offer relative stability.

Furthermore, both Eco Animal Health and M&C Saatchi have excellent growth prospects. For example, over the next two years, Eco Animal Health is expected to grow its bottom line by 45%. That’s a stunning rate of growth and it could act as a clear catalyst on the company’s share price – especially when it trades on a price to earnings growth (PEG) ratio of just 1. Meanwhile, M&C Saatchi’s bottom line is forecast to rise by 27% over the same time period, with its PEG ratio of 1.3 indicating that it offers growth at a reasonable price, too.

Future Potential

Of course, past profitability is not everything. For example, alkaline fuel cell company, AFC Energy (LSE: AFC), has just swung into profit in its half year results and, looking ahead, has superb potential to tap into growing demand for cleaner fuels. And, with agreements already in place to generate $billions in revenue over the long term through multiple joint ventures, AFC appears to be a company with excellent long term growth potential. Certainly, it may trade on a P/B ratio of 13.6, but it could become a very profitable company over the medium to long term.

Looking Ahead

So, while Blinkx does have the financial means through which to rejuvenate its earnings profile and is a very cheap stock, Eco Animal Health, M&C Saatchi and AFC Energy appear to offer a more appealing risk/reward profile at the present time. Clearly, since all four companies being relatively small they are riskier than their larger counterparts, but they also offer excellent long term capital gain potential that makes them very enticing right now.

The post 3 Small Caps I’d Buy Before Blinkx Plc: AFC Energy plc, Eco Animal Health Group Plc And M&C Saatchi Plc appeared first on The Twelfth Magpie.

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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. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.