Let’s explore where they could go next and whether I should buy.

Investec: a dividend stock with a solid yield

Specialist Anglo-African banking group Investec (LSE:INVP) has climbed higher than any other FTSE 250 stock over the past year. The blistering 137% growth in the Investec share price hasn’t dented the stock’s passive income appeal. It still yields a healthy 3.7%.

I also like the geographic diversification away from the UK economy that it offers via significant exposure to emerging markets from its Johannesburg operations. At £14.1bn, over 53% of its net core loans are in Southern Africa.

The FTSE 250 bank should also prove resilient in a rising interest rate environment. These factors make Investec stock a great pick to protect my portfolio from the twin threats of a domestic recession and inflation.

On the other hand, credit rating agencies have expressed concerns about rising government debt in South Africa. This could pose a headwind for Investec. Nevertheless, with adjusted operating profit of £377.6m for 2021 and positive forecasts for 2022, the potential risks wouldn’t dissuade me from buying the shares today.

Indivior: a pharma growth stock

Another star performer in the FTSE 250 index is healthcare company Indivior (LSE:INDV). The drug manufacturer’s share price is up by 132% on a 52-week basis and a stunning 585% over two years.

Indivior specialises in opioid addiction treatments. Demand for its products is rocketing due to the opioid problem currently haunting the US. According to the CDC, overdose deaths involving opioids increased by 138% from 2015 to 2021.

Unsurprisingly, Indivior’s financials have benefited. Net revenue increased from $647m to $791m last year, driven primarily by an 88% uptick in net revenue from its extended release injection, Sublocade.

Indivior stock is not without risks, however, demonstrated by its payment of a $600m settlement in 2020 to resolve liability arising from false marketing of its Suboxone Film treatment in Massachusetts, which at one stage threatened to bankrupt the company.

But with its legal troubles in the rear-view mirror and investment in R&D to expand its pipeline into Cannabis Use Disorder treatments, this pharmaceutical company has a bright future, in my opinion. I’d buy.

Drax Group: a FTSE 250 energy stock

Drax Group (LSE:DRX), the owner and operator of the UK’s largest biomass and coal-fuelled power station, has seen its share price almost double over the past 12 months.

Moreover, the company’s adjusted profits rose from £800m to £843m in 2021. Shareholders also benefit from a handy 18.8p dividend per share.

There are clear concerns about investing in a fossil fuel business. However, Drax Group has taken steps to mitigate this.

It is the world’s first energy company to announce an ambition to become carbon negative by 2030. Indeed, the company currently supplies 12% of the UK’s total renewable energy.

Furthermore, there is increasing pressure to diversify away from Russian oil and gas. In this context, I’d buy shares in this homegrown FTSE 250 energy company today.

The post 3 hot FTSE 250 shares that could surge in 2022 appeared first on The Twelfth Magpie.

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Charlie Carman 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.

Future

One company that’s knocked the ball out of the park has been media group Future (LSE: FUTR). Its shares have leapt 105% in the year to date as the company’s strategy of snapping up publishing assets continues to pay off and profits have soared. That’s a superb return compared to the 13% achieved by the FTSE 250 index as a whole.

At £4.5bn, Future is now knocking loudly on the door of the FTSE 100. Whether it manages to gain entry in 2022 is open to debate though. Having grown strongly during the pandemic, I wonder whether performance will moderate as we emerge on the other side. Some profit-taking looks inevitable too. 

However, I’m inclined to be optimistic. Margins are steadily improving and free cash flow is strong. Perhaps most importantly, the company announced in November that FY22 adjusted results would likely be “materially above current expectations“.

So, based on a valuation of 24 times earnings, I wouldn’t be against adding Future to my own portfolio.

Indivior

Another second-tier winner in 2021 is pharmaceuticals business Indivior (LSE: INDV). Its stock has delivered a near-150% gain — thanks to the company repeatedly raising its guidance on earnings. The supplier of medicines to treat drug abuse and mental illness has also been buying back its stock, further supporting the ascent of its share price. 

Looking ahead, analysts are expecting Indivior to grow earnings per share by 45% in 2022. This leaves the stock on a P/E of 16. Sadly, I don’t think the demand for its products is likely to fall dramatically on a longer timeline either, potentially making Indivior an ideal buy-and-hold candidate.

That said, it’s worth noting that this stock has shown itself to be highly volatile in the past. Back in 2020, for example, the price crashed 30% in just one day after news that former parent company Reckitt had filed a lawsuit against it. That’s the sort of movement we might associate with a penny stock. It also makes me doubt whether I’d want to add the stock to my own portfolio, particularly as Indivior doesn’t offer a dividend as compensation. 

Watches of Switzerland

A third FTSE 250 member that’s done extremely well for shareholders has been Watches of Switzerland (LSE: WOSG). The premium timepiece seller’s value has climbed just over 155%, serving as a reminder to me that momentum can continue for a lot longer than one may expect. Every time I’ve assumed a pullback will occur, the share price has only moved higher. Investing is hard.

Like Future, however, I do question what may happen to the stock when the pandemic has finally passed. I suspect shoppers will want to use their cash on experiences rather than posh watches. As such, I still maintain that some kind of retreat wouldn’t be a surprise in 2022. The current valuation seems to make the risky assumption that management will execute its plans perfectly.

As good as recent trading in the UK and the US has been, a P/E of 37 looks too dear to me. WOSG stays on my watchlist for now. 

The post 3 FTSE 250 stocks I wish I’d bought in 2021 appeared first on The Twelfth Magpie.

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Paul Summers 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.

Soon after shares in the consumer goods giant hit their all-time high of 8,100p in June 2017, cracks started to appear in Reckitt’s business model as its $17bn deal to buy Mead Johnson, the US-based infant formula business, went sour.

Growth ground to a halt and the company suffered a series of operational disappointments, which shook investor confidence. These problems have claimed the head of former CEO Rakesh Kapoor, who is stepping down. He will be replaced by Laxman Narasimhan, who is set to take over in September. 

Narasimhan will have his work cut out to restore investor confidence. After earnings growth of just 2.3% in 2018, City analysts are forecasting almost no growth in 2019. Although there’s an earnings uptick of 5.4% pencilled in for 2020, that’s a substantial reduction on the earnings growth rates of 13% to 18% reported between 2015 and 2017. 

Moving on

Even though growth has slowed, Reckitt is working hard to move on from its issues. The central pillar of the firm’s turnaround is the separation of Reckitt’s two primary businesses, health, and hygiene and household products. This separation will, management believes, help refine the business’s focus and ultimately drive growth. 

Also Reckitt announced today it has agreed a $1.4bn settlement with the US Department of Justice and the Federal Trade Commission regarding an investigation into how its former subsidiary, Indivior (LSE: INDV), marketed Suboxone, its flagship opioid addiction treatment drug. 

Limiting liabilities

Reckitt had set aside $400m to cover any liabilities stemming from its association with Indivior, and while the company itself hasn’t been charged, there’s been a looming threat that the group could be dragged into Indivior’s legal woes at a later date. Indivior is facing at least $3bn in fines over allegations it committed fraud from 2006 to 2015 by making unfounded claims about the potential of Suboxone to drive up sales. 

Indivior is still facing these legal claims, and it could be some time before any settlement is announced. With a market-cap of just £323m, or around $400m at present, there’s a very real chance these claims could bankrupt the company, so I’d stay away from this firm for the time being.

That said, the fact Reckitt has been able to agree a settlement is a positive development for the firm. This has increased the odds that Indivior will be able to do the same, although I wouldn’t bet on it at this stage. 

Time to buy

Meanwhile, now the consumer goods giant has put this issue behind it, I think Reckitt’s fortunes are improving. As a result, now could be the time to snap up shares in this business at a bargain price.

At the time of writing, the stock is trading at a forward P/E of just 18, below its five-year average of 22. On top of that, the stock supports a dividend yield of 2.7%, the payout is covered twice by earnings per share and has grown at a compound annual rate of 5% for the past six years

So, overall, if you’re looking to add a defensive income stock to your portfolio at an attractive price, I highly recommend taking a closer look at Reckitt. 

The post Forget the cash ISA! I’d buy this FTSE 100 dividend bargain today appeared first on The Twelfth Magpie.

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Rupert Hargreaves owns no 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.

The company warned that while it disputes the allegations, a verdict against it could have “a material adverse effect on the Company and its financial position”.

Here I’m taking a fresh look at this firm, which specialises in treatment for opioid addiction. Would I buy, sell or hold the stock after today’s news?

What are the charges?

The Department of Justice has charged Indivior with 28 felony counts, most of which are mail or wire fraud. These are broad charges, but according to the company, the DoJ is making two main claims.

The first claim is that Indivior encouraged doctors to prescribe Suboxone “to too many people or in too high doses” in order to boost sales.

The second claim is that the firm “misled doctors and patients” when it claimed its Suboxone Film product was safer than tablets and less likely to be abused or taken accidentally by children.

The US authorities are suggesting that the real motive for the introduction of Suboxone Film in 2007 was to use patent laws to prevent generic alternatives becoming available — something that has been a major focus for Indivior in recent years.

Will the company settle?

Indivior believes that “the allegations are unsupported by the facts and the law”. Most of the events involved are said to date from before the firm was spun out of Reckitt Benckiser in 2014.

However, the company says it has co-operated with the DoJ “for several years” and “made numerous attempts to reach a settlement”.

As the DoJ has now gone ahead and charged Indivior, I assume that a settlement is unlikely, if not impossible.

What should investors do now?

The firm has long looked speculative to me. For years, it’s been clear that profits were dependent on its ability to prevent generic rivals coming to market.

In February, management appeared ready to admit defeat, when the firm launched its own generic version of Suboxone Film. I covered this story here and suggested that revenue could fall by as much as 80% in 2019.

At that time, I didn’t know about the DoJ allegations. Even so, my verdict was that “buying the shares at current levels is little more than a gamble”.

Indivior shares have fallen even further since then, so is the stock worth a punt?

I wouldn’t touch it

Press reports I’ve seen today suggest the DoJ may be hoping for a fine of about $3bn. In my view, that would probably put Indivior out of business, leaving shareholders with nothing.

Even if the company manages to clear its name in court or secures a more affordable fine, the future looks highly uncertain to me.

I don’t see any way that outside investors can work out a meaningful valuation for this business. Nor can I see any way of predicting what’s likely to happen next.

In my view, this is a stock to avoid at all costs. If I was a shareholder, I’d accept defeat and sell, so that I could be sure of recovering some cash.

The post Is it game over for pharma flop Indivior after 75% crash? appeared first on The Twelfth Magpie.

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Roland Head 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.

An 8% yield to take home?

Housebuilding stocks divide opinion. Some investors fear that we’re on the cusp of a housing market slump, especially in the event of a no-deal Brexit.

Despite these risks, it’s worth noting that low interest rates and high levels of employment are generally seen as supportive for the housing market. Strong demand from the rental sector is also a positive.

FTSE 100 firm Barratt Developments (LSE: BDEV) is one of my top picks in this sector. The company recently said that housing completions rose by 4.1% to 7,622 homes during the six months to 31 December. Pre-tax profit for the period rose 19.1% to £408m, thanks to higher profit margins.

The company ended the period with net cash of £388m and expects this total to reach more than £600m by the end of June. Much of this will be returned to shareholders through the firm’s dividend, with additional £175m returns planned for 2019 and 2020.

At current levels, the shares trade on 8.3 times forecast earnings with a dividend yield of 7.8% for the current year. This high yield includes the £175m return I mentioned above — without this, the yield would be about 5%.

If the housing market remains stable, Barratt’s valuation looks like a buy to me. It’s not without risk, but I believe this business is fundamentally sound and should reward long-term investors.

This could be the end

One company I feel much less confident about is FTSE 250 pharmaceutical firm Indivior (LSE: INDV). Shares in this addiction treatment specialist have fallen by nearly 80% since June 2018.

The reason for this collapse is that a rival firm is now very close to gaining approval to sell a generic alternative to Indivior’s main product, Suboxone Film. This is used to treat opioid addiction, mainly in the US market.

Indivior’s lawyers have been fighting a running battle to prevent this for several years. But the commentary in today’s results suggests chief executive Shaun Thaxter is preparing for a final defeat which could come later this month.

Thaxter says the company has been cutting headcount, hoarding cash, and has prepared its own generic version of Suboxone Film. This will be launched if generic rivals are given the green light.

Sales could fall by 80%

In 2018, Indivior generated net revenue of $1,005m. Almost all of this came from Suboxone. The firm’s only other commercial product, Sublocade, generated revenue of just $12m.

Generic products sell at much lower prices than patent-protected branded medicines. Indivior expects its generic product to generate revenue of only “tens of US $ millions.” Sales of the more expensive branded product would almost disappear.

Sales of new product Sublocade are expected to rise to $50m-$70m in 2019. Based on this guidance, I estimate that Indivior’s core revenue could fall by 80% to as little as $200m in 2019.

This is probably a worst-case scenario, but it seems to me that the group’s £791m market-cap is almost certainly too high. In my view, buying the shares at current levels is little more than a gamble. I see this as a stock to avoid.

The post An 8% FTSE 100 dividend stock I’d buy today, and a falling knife I’d avoid appeared first on The Twelfth Magpie.

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Roland Head 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.

The three FTSE 250 stocks that have fallen most have lost in excess of 65% of their value. Fashion retailer Superdry (LSE: SDRY) is down 66%, holidays group Thomas Cook (LSE: TCG) has slumped 75% and pharmaceuticals firm Indivior (LSE: INDV) has shed an incredible 80%.

Clearly, these three stocks would deliver massive gains for new investors today, if they were return to their former levels. Could it be time to load up for a recovery in 2019?

Market darling

The Superdry share price hit a new all-time high in the first week of January. However, it’s been downhill ever since, with the decline only magnified by a high valuation as a market darling to begin with. It was trading on a forward price-to-earnings (P/E) ratio of 22 at the start of the year. Today, the forward P/E is just 8.3.

With the company pinning a profit warning in October on unusually warm weather, and with co-founder Julian Dunkerton, who left earlier this year, now agitating to rejoin the business, Superdry fans may find it easy to envisage a return to the glory days. I’m not convinced. The company’s underlying operating margin has declined each and every year since 2013, pointing to longer-term issues than the recent spell of problem weather. I’m uncertain as to when and where the falling margin will bottom out, so I’m avoiding the stock for the time being.

Double profit warning

Things have gone from bad to worse for troubled travel giant Thomas Cook this year, with the company issuing a second profit warning just two weeks ago. Weather was again the problem. In contrast to Superdry, which at least has a decent balance sheet and well-covered dividend (yielding 4.6%), Thomas Cook reported net debt of £389m (up from £40m a year ago) and suspended this year’s dividend.

The company said it remains compliant with its banking covenants, but I view the level of debt as a huge risk in what is a highly competitive low-margin industry. I’m not tempted by a forward P/E of just 4.1, and see this as a stock to avoid, due to the severity of the downside risk of debt spiralling out of control.

Suboxone setback

Indivior, which specialises in the treatment of opioid dependency, has been fighting a losing battle this year in trying to protect its biggest-selling drug, Suboxone Film, from generic competition in the US. It’s reckoned Indivior’s branded product could lose up to 80% of its market share within months of the launch of a generic rival. And indeed, City analysts have pencilled in an 80% collapse in earnings for calendar 2019, such is the company’s heavy reliance on Suboxone.

Indivior reckons it has a strong pipeline of new product candidates. However, uncertainty in this area (it has reported slower-than-expected commercial uptake of one recently-launched product) and a relatively high forward P/E of 19.7, lead me to conclude this is another stock to avoid.

Unfortunately, I haven’t been won over by the recovery potential of this year’s three big FTSE 250 flops. However, I’m far more optimistic that some of the biggest FTSE 100 fallers could be among 2019’s biggest winners.

The post Could this year’s biggest FTSE 250 fallers be 2019’s biggest winners? appeared first on The Twelfth Magpie.

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G A Chester has no position in any of the shares mentioned. The Motley Fool UK has recommended Superdry. 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.

Personally, I’m not so sure. A gain of just 1.5% per year means your money is probably losing value after inflation, which is currently 2.4%.

Although the value of a FTSE 100 tracker may be down this year, you should still have received 3-4% in dividends. Plus there’s every chance that the FTSE 100 will bounce back, in time, delivering further gains.

Beat the market

If you invest directly in hand-picked stocks, much larger gains may be possible. FTSE 100 pharmaceutical group AstraZeneca (LSE: AZN) has risen by 20% so far in 2018.

The company’s long-running turnaround finally seems to be delivering results. On Monday, the group announced that the US Federal Drugs Administration had granted Fasenra Orphan Drug Designation for the treatment of a rare autoimmune disease, EGPA.

Although I don’t expect this to be a major earner, I do think it suggests that the company’s revamped research and development policy is starting to deliver results.

A turning point

Since taking charge six years ago, chief executive Pascal Soriot has spent a lot of money on R&D. Soriot now believes that the tide has now turned for AstraZeneca. Earlier this month, he told investors:“Today marks … what we expect will be the start of a period of sustained growth for years to come.”

City analysts seem to agree. After falling for several years, broker forecasts suggest that the group’s adjusted earnings will rise by 13% in 2019. If this marks the start of a long run of growth, then the shares could be worth buying.

However, I think it’s worth noting that after climbing 77% in five years, AstraZeneca stock no longer looks cheap. In January 2012, the group had a net cash position of $2.9bn. The firm’s latest accounts show it now carries net debt of $16.2bn.

In my opinion, this level of debt should be manageable for a company that’s expected to generate a profit of about $4.3bn in 2018. But with the shares now trading on 21 times forecast earnings, I believe significant earnings growth will be needed to justify a buy rating on the stock.

Personally, I’d continue to hold the shares at current levels, but I believe better opportunities are available elsewhere for new investors.

Down 80%, is this stock too cheap?

One pharma stock that may attract the attention of value investors is FTSE 250 firm Indivior (LSE: INDV). This company’s main commercial product is Suboxone Film, a patented treatment for opioid addiction.

Indivior’s share price has fallen by about 80% since June, as the firm has fought a losing legal battle to prevent the market launch of a much cheaper generic alternative to Suboxone Film.

Indian firm Dr Reddy’s Laboratories now appears to be close to being able to launch its product in the US market. Once this happens, Indivior expects to lose “up to 80% of its market share within a matter of months.”

Indivior shares may look cheap on 5 times 2018 forecast earnings. But such massive uncertainty means that I believe Indivior is only suitable for expert investors.

The post Forget 1.5% from a cash ISA. FTSE 100 member AstraZeneca is up by 20% in 2018 appeared first on The Twelfth Magpie.

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Roland Head has no position in any of the shares mentioned. 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.

A series of profit warnings have been behind the decline. An unseasonably warm summer in the UK hit demand for overseas holidays, and now the group is paying for it in lower expected profits.

Analysts believe the company will now report profit before tax for the full year of around £150m, down from the previously expected £200m.

In my view, the market’s reaction to this downgrade has been too severe. The sell-off has pushed the shares down to a valuation of just five times forward earnings, which seems too low for a business that still has a leading position in the UK holiday market. What’s more, an improvement in bookings for summer 2019 should see investors return to the company. If and when they do, it looks as if the stock has the potential to triple from current levels as the rest of the sector is trading at a forward P/E of 15. This level of reward is certainly worth the risk, in my opinion.

Founder return

Superdry (LSE: SDRY) was flying high at the beginning of this year. The casualwear fashion retailer seemed immune to the rest of the retail sector’s woes, and investors were willing to award the stock a high multiple as a result.

Unfortunately, the positive sentiment hasn’t lasted. Year-to-date, the stock is down around 60%. The company’s problems are two-fold. Julian Dunkerton, Superdry’s co-founder, has been a vocal critic of the current management, which has shaken investor confidence. At the same time, a profit warning last month showed investors that Superdry is as not as invincible as it once appeared to be.

I’m hesitant to recommend buying the shares at this level for both of these reasons. I’ve never been an expert in fashion and today’s retail environment only makes trying to understanding the outlook for the sector more complex. 

With this being the case, even though the shares are trading at a historically cheap forward P/E of 8.9, I’m not rushing to buy. I’d like to see some signs of a recovery before making a move.

Looks too cheap

Indivior (LSE: INDV) is another stock that looks cheap on a historical basis, but I’m inclined to avoid due to its mixed outlook.

Right now, shares in the pharmaceutical business are changing hands for just 10.2 times forward earnings, compared to the pharmaceutical sector average of 16, which looks cheap at first glance. However, City analysts are expecting earnings per share to slide by nearly 50% over the next two years. 

In some respects, this is a conservative estimate because new competitors are edging in on Indivior’s key opioid treatment market all the time. And the company is having to fight increasingly hard to maintain its market share. 

With this being the case, even though the business looks cheap after the recent decline (the stock is down 60% over the past five months), I think the shares deserve a low valuation considering the uncertain outlook for the business. Therefore, I rate Indivior as a ‘sell’.

The post These FTSE 250 stocks have plunged 50% in 12 months. Is it time to buy? appeared first on The Twelfth Magpie.

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended Superdry. 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.

Dr. Reddy’s Laboratories, an Indian pharmaceuticals firm, has been temporarily prevented from selling its generic competitor by a preliminary injunction on 13 July, but it seems that in the preceding days the firm was able to get a large amount of it out to the market.

Indivior had anticipated a 2018 revenue hit of at least $25m, but now says it could be “materially higher“. Although sales of Dr. Reddy’s alternative have been stopped for now, the drug had already gained Food and Drug Administration approval in the USA. That approval is being contested by Indivior, alleging that it infringes on its patents, and the whole issue is heading for the US courts with both sides seeking a speedy judgment.

Profits down

The rest of the H1 results seemed barely significant in comparison, but included a 7% fall in net revenue at constant exchange rates, and a 34% drop in adjusted operating profit with adjusted EPS down 16%.

The question is, are the shares an oversold bargain now? I’d say that is a total gamble. Should the courts rule in favour of Indivior, we could see business back to usual. But there will still be a one-off hit from the generic drug already released, and the competitors will still be there when the patent expires.

With around 80% of Indivior’s 2017 revenue coming from Suboxone and making it pretty much a one-trick pony, could a judgment in favour of Dr, Reddy’s even wipe out the company?

Another faller

Among the rest of the day’s fallers, my eye was caught by Tern (LSE: TERN), which describes itself as an “investment company specialising in the Internet of Things.” That’s something which makes me a bit nervous these days, as I can’t help feeling it’s a buzz phrase that has perhaps been overhyped a little.

Tern shares lost 16% in early trading, on the day the company revealed that it has raised £2.9m through a placing at 26p per share. That was 6p lower than Tuesday’s closing price, so a drop to just under 28p in response doesn’t seem all that surprising.

Chief executive Al Sisto said it will “enhance our opportunity to further develop our underlying net asset value,” which I take to mean keep the company afloat for a while longer until it achieves sustainable profitability.

Asset acquisition

There was other, apparently good, news on the day too, after InVMA, a company in which Tern has a 50% holding, announced it has acquired “the intellectual property and other assets of  Cambridge-based AMIHO Technology.” AMIHO, apparently, is working on “the problem of connectivity for the smart energy industry.” And though I don’t pretend to understand what that means, it sounds like it’s developed a bunch of application-specific communications technology.

What does it all mean for me as an investor? Not a lot, frankly. What I see is a ‘jam tomorrow’ company working in a sector that I don’t really understand, and whose share price has been gyrating wildly. Not for me.

The post Is Indivior a falling knife to buy after plunging 20%? appeared first on The Twelfth Magpie.

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Alan Oscroft 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.

And to begin with, the stock performed exceptionally well, nearly doubling in value over the next 12 months. However, after jumping to a high in June 2015, the stock slumped back below its IPO price at the beginning of 2016. But the stock then charged higher to an all-time high of 490p at the beginning of June this year. 

Over the past 40 days, the positive performance of the past few years has been almost entirely erased. At the end of last week, the stock was changing hands for just 300p, 39% below the all-time high. Once again, the stock has clawed back a chunk of these declines today, rising 23% in early deals.

One trick pony? 

Indivior’s shares are highly volatile because the business essentially only has one product. The company’s opioid addiction Suboxone Film generates 80% of revenue. While the market for this product is tremendous, Indivior’s fat profit margins have other companies itching to get in on the action. 

The latest challenger is India’s Dr.Reddy’s Laboratories. Dr. Reddy’s has received approval from the Food and Drug Administration to launch a generic version of Suboxone Film cutting into Invidior’s revenues. Last week the company warned that its revenue and profit guidance for 2018 was “no longer valid” following Dr. Reddy’s assault on the market, a warning which sent Indivior’s shares plunging. 

Today the stock is rising off the back of the news that Dr. Reddy has been blocked from selling its rival product with a court injunction. This is positive news for the company in the near term, but what worries me is that it competitors are clearly massing for an assault on Indivior’s lucrative business. 

With the US suffering from an opioid addiction crisis, lawmakers are unlikely to protect the group’s monopoly forever. So, it is no surprise City analysts expect Indivior’s earnings per share to fall by more than 60% over the next two years. 

Despite this dour forecast, the shares trade a forward P/E of 17.9. With the long term outlook uncertain, I’m avoiding the company.

Creating investor wealth

In my opinion, Melrose (LSE: MRO), on the other hand, has a much brighter outlook. The company essentially operates as a private equity business. It buys, improves and then sells engineering businesses, rewarding shareholders with large payouts when deals complete. 

The company’s record at creating value is flawless. Between 2012 and 2017, Melrose estimates it has created £3.6bn in value for shareholders, an average annual return of 22%, roughly two and a half times the average FTSE 250 annual return over the same period. 

The company’s latest target is GKN, which it acquired earlier this year with the goal of transforming the business. City analysts are expecting big things. Earnings growth of 53% is pencilled in for 2018 and growth of 36% is projected for 2019. 

Based on these estimates, the stock is trading at a slightly pricey forward earnings multiple of 15.7, but in my opinion, this is a price worth paying for a business growing at 30%+ per annum with a record of creating billions of pounds in profit for investors. In fact, based on its record, I would rate Melrose as one of the cheapest growth stocks in the FTSE 250.

The post Are these the cheapest growth stocks in the FTSE 250? appeared first on The Twelfth Magpie.

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK owns shares of Melrose. 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.