While there are a number of sectors that could be worthy of investment for the long term, the healthcare industry continues to offer strong growth potential. The world’s population continues to grow and is expected to do so for a number of decades. Alongside changing demographics in terms of an ageing population, this could provide a growth catalyst for healthcare stocks in a variety of disciplines.
As such, now could be the right time to focus on such stocks. With that in mind, here are two companies that could be worth buying for the long term.
Growth potential
Reporting on Thursday was clinical stage biopharmaceutical company Realm Therapeutics (LSE: RLM). The company is focused on developing novel therapeutics in immune-mediated diseases, with it having met various transformational goals during 2017. During the year, the company submitted investigational new drug (IND) applications for its two lead candidates: PR022 for Atopic Dermatitis and PR013 for Allergic Conjunctivitis. The FDA allowed both to proceed directly into Phase 2 studies, with trials commencing in the latter part of the year.
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Looking ahead, top-line results are expected for the PR013 study by the end of the first quarter. The company is also on track to release top-line PR022 study results by the end of the third quarter. Crucially, the company appears to have the financial firepower to deliver on its current clinical programmes and this could indicate it has the potential to deliver improving share price performance even after its valuation has doubled in the last two years.
While a relatively small company which remains loss-making, Realm Therapeutics could be a worthwhile holding for less risk-averse investors who are bullish on the prospects for the healthcare industry.
Disappointing performance
Also offering upside potential in the healthcare space is global biotech Shire (LSE: SHP). The company has experienced a disappointing period, with investors becoming increasingly bearish following its amalgamation with Baxalta. This has contributed to a fall in the stock’s valuation of 35% in the last year. This has left the company with a price-to-earnings (P/E) ratio of just 8.1. This suggests that it has a wide margin of safety and may offer high growth potential in future.
Looking ahead, Shire is forecast to post a 9% earnings rise in the next financial year. This puts it on a price-to-earnings growth (PEG) ratio of just 0.9. For a major biotech stock — which appears to have a bright future due to its improving pipeline — this appears to be a difficult valuation to justify.
Certainly, its future may be uncertain to some degree. And its debt levels may have increased significantly following the acquisition of Baxalta. But with encouraging growth prospects and a low valuation potential catalysts, it could be a stock to buy and hold for the long term.
