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Are Mesoblast and Acrux Limited too cheap to ignore?

There are few better stocks on the ASX to buy for potential than Mesoblast limited (ASX: MSB). It has been touching 52-week lows in the last week as investor impatience over a business long on promise, but short on delivery starts to bite. The potential remains evident but so do the fundamentals of negative earnings per share and cashflows, with little likelihood of that changing over the next year.

However, Mesoblast remains a high-risk, high-reward proposition for those prepared to back its regenerative stem cell biotechnology. It’s in the process of developing a range of therapies for common diseases and medical complaints, the science being to develop stem cells that regenerate ageing or diseased body parts such as cartilage, bone and muscle.

A $170 million global capital raising in 2013 gives the company over $240 million in cash to fund ongoing research and development for the next few years and it now has late stage clinical trials in process across all four of its key focus areas in developing drugs for commercial sale. If able to rollout one or more of these products in the next few years, then multi-billion dollar revenues on high margins could be expected to equal an explosive share price.

Selling for $4.38 today Mesoblast is offering a 33% discount to its November valuation even though the company has announced it continues to make steady progress and remains highly confident of success. On May 29 it announced it’s bringing forward plans for its commercial manufacturing operations in Singapore, as it prepares for anticipated product launches in the United States and other major markets. It looks a speculative buy at today’s prices.

Other biotech businesses with big potential include Sirtex Limited (ASX: SIR) which is already growing sales of its innovative liver cancer treatment with potential for expansion if other clinical trials prove positive. While ADEMEDUS FPO (ASX: AHZ) recently completed an oversubscribed share placement to indicate investors still like its potential over short, medium, and long-term horizons. Selling for $0.81 Acrux Limited  (ASX: ACR) is a company under heavy selling pressure, but offers a yield of 10.8% based on 2014’s projected payout and a price-earnings of just over 4. Best of all is that any potential capital gains realised by investors on the sale of Acrux shares will not be included in their assessable income for that year. This is because Acrux has concessionary tax status as a Pooled Development Fund.

Smaller biotech stocks remain risky propositions, but there’s another company giving investors…

Record profits and a fast growing, fully franked dividend...

This little known ASX company has already delivered eight consecutive years of profit and dividend growth... but with even more growth ahead, the shares are still a firm "BUY" today! Discover The Motley Fool's #1 dividend pick in our newly updated report. Simply click here for your FREE copy right now. 

Motley Fool contributor Tom Richardson owns shares in Sirtex, Acrux and Admedus. You can find him on Twitter @tommyr345

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