Motley Fool Australia

Motley Fool Australia

Since 1993, millions of investors have trusted The Motley Fool for simple, down-to-earth investing research.

Issue 6, May 2012. One Biotech Positioned For Strong and Prolonged Growth

Dear Fellow Fool,

Welcome to our Special Biotechnology edition of Share Advisor.

Our goal at Share Advisor is to recommend solid companies that you can buy and hold for the long term. Our featured biotech company this month is no exception.

In high-risk industries such as biotechnology, careful stock picking is essential, as even the most disciplined buy-and-hold strategy won’t work with low-quality companies. However, it can work spectacularly well with growing businesses that benefit from sustainable competitive advantages.

Dean’s risk-averse, high-probability approach to investing can make it difficult to invest in the volatile world of biotechnology – not many companies have the margin of safety we’re looking for, but in this edition of Share Advisor, he highlights an ASX pick that has the odds stacked in its favour.

There are 50 ASX companies in the Biotechnology sector and 78 in the wider industry of Pharmaceuticals, Biotechnology and Life Sciences. As you can imagine, Dean has been hard at work narrowing down that group of companies to one recommended stock, and six promising watchlist stocks.

Bruce’s U.S. pick has industry-leading returns on equity and net profit margins. And with the shares trading at around 30% below their 12-month highs, market worries have given us the chance to buy at a price we like.

  • Dean’s New Stock: Find out why we think Sirtex Medical (ASX: SRX) is playing with a stacked deck. With five major trials under way to increase the awareness and use of its liver cancer treatment, Sirtex is positioned for strong and prolonged growth.
  • Bruce’s New Stock: Titanium Metals (NYSE: TIE) or ‘Timet’ for those in the know, is the largest US producer of titanium, a sturdy-but-lightweight metal used in the aerospace industry, among many others.
  • Watchlist: Six more biotechnology companies that are on our radar. The biotech sector is sensibly viewed within a matrix of product type and risk level; with drugs, diagnostics and devices down one side and a low to high risk scale along the bottom. We’ve selected a representative cross-section of leading businesses that are worthy of a place on your radar.
  • Investing DNA. History rhymes as bull and bear markets intertwine. Plus why now is a wonderful time to be a long-term investor.

Click here to access the May issue of Motley Fool Share Advisor or copy and paste the link below into your browser. You can also access this and past issues from the Share Advisor Issues page.

http://g.foolcdn.com.au/wp-content/uploads/2012/04/ShareAdvisor-2012-05-SRX-TIE.pdf

Important Note: We are aware some people have had problems downloading Share Advisor, so we’ve also uploaded it to a backup location. Click here to download from the backup location, or cut and paste the URL below into your browser.

https://docs.google.com/open?id=0B31vMHz5fdp6N0NIMFZ2cG5SRDg

If you’re still unable to download this issue, please click here to email Member Support and we will speedily help you access the issue.

Another Important Note: As subscribers will know, last month the share price of our featured ASX stock, Industrea (ASX: IDL), jumped 7% higher the day after we released our recommendation. Today it trades at a lower price than it was before the first-day buying frenzy.

Industrea is not unique. Despite a rising market, it has been possible to buy all of our picks at a lower price than available on the first day.

Please don’t rush to buy our recommendations on the first day. Odds are you’ll be able to buy at a lower price, and as you wait, you’ll get to practice the valuable investing skill of patience.

We encourage our readers to use limit orders. If we all used limit orders from the start, we’d see less of a first-day share price pop. That said, we already know that a pop is likely for our smaller recommendations, so we’re not going set a “hard” limit price in a trade and then have most members not even get shares at all.

We’re walking a fine line between today and the long-term. Today, we want to get good prices. We want all our subscribers to buy at those good prices. And remember, in the long run, if our stock picking process is sound, some initial share price variation won’t matter much at all.

Turning specifically to Sirtex, on the back of 34% dose sales growth in the third quarter, and growing interest in the biotech sector, Sirtex’ share price has surged 20% in the past few weeks.

We’d prefer members were patient in accumulating a position and recommend buying in thirds. Buying in thirds is a time-honoured Motley Fool practice, teaching investors to enter an eventual ‘full’ stockholding in three separate lots. This is typically advisable for those who are new to investing, those who like a stock long-term but worry about its present valuation being high, and those who like to dollar-cost average.

Your Motley Fool Share Advisor Free Reports

Quick reminder: As a member of Motley Fool Share Advisor, you’ll have already received our free investing reports. We trust you enjoyed, and learnt from them.

Like Shares 2012 and How To Value A Company, we will be providing more free special reports to you, our members, in 2012.

In case you’re after a refresher, and in particular, if you are interested in buying U.S. shares, we’ve linked to all our free reports below.

Next Week – More on M2 Communications and Maverick Drilling & Exploration

We’ll be back on Monday with our usual weekly email update. Dean will have more thoughts on M2 Communications (ASX: MTU), and we’ll touch on Thorn Group (ASX: TGA).

We’ve received a number of emails from concerned subscribers regarding the falling Thorn share price. In short, in the absence of any news, our view on Thorn hasn’t changed – we still rate the stock a buy. However, Dean suggests existing investors not add to their position at this moment. He’ll explain more on Monday.

Watchlist stock Maverick Drilling & Exploration (ASX: MAD) was back in the news today, announcing a more than doubling of its acreage holdings at Nash Dome. We’re hoping to bring an interview with Maverick executive director Brad Simmons to you later next week, along with our very latest views on this exciting oil company.

And Finally…

Motley Fool Share Advisor is a subscription-only product. On one recent occasion we have been alerted to the fact that our copyrighted content has been posted on 3rd party sites.

Of course we will act instantly if we see, or are alerted to our content being posted elsewhere, and it will be immediately removed.

But we politely ask you to observe not only our terms and conditions, but also respect your fellow subscribers. It’s simply not fair that non-subscribers have access to our valuable content and recommendations.

If you ever have any questions, please email us at MemberSupportAU@fool.com.au. As ever, we thank you for your trust and support.

Foolish best,

Bruce Jackson and Dean Morel

The Motley Fool Australia Team

Hot off the presses! This sexy tech stock is our #1 pick for 2015…

Every year, The Motley Fool’s top analysts hand-pick one company as their ‘best bet’ for big returns in 2015 and beyond… And you can be among the first to discover their brand-new 2015 pick!

Discover this sexy yet well-run ASX tech company, including the name and code, for FREE right now. Click here for your copy of "The Motley Fool’s Top Stock for 2015".

See all posts by Dean Morel
The Motley Fool