The market has just closed the books on the worst quarter since 2020, when fears of a growing pandemic tanked stocks.

But with COVID-19 in the rearview mirror (for now), can investors breathe easier?

With this week’s Stock of the Week, they can… literally.

The stock I have for you this week is a biotech company that is tackling the growing problem of asthma. Air quality is on the decline… and asthma cases are on the rise. This company is seeing revenue for its products jump as a result.

After being flat for many years, the stock is on a tear in 2022. But that’s not the only reason it showed up on my radar.

See how it fits into my Growth-Value-Income system in this week’s Stock of the Week.

Click on the image below to watch it.

And if you have a stock you’d like me to analyze for Stock of the Week, be sure to send it to mailbag@manwardpress.com.

Transcript

Well, hello, everyone. Welcome to another Stock of the Week.

Now, given that the markets just had one of the worst quarters, you might be wondering, “Why on earth – or even how on earth – do we find a Stock of the Week?”

Well, this is when you need specialist, in-depth research, and that’s what we’re about.

I’m Alpesh Patel, hedge fund manager, as you know, and also the person behind GVI Investor. My team at the hedge fund looks deep into over 10,000 stocks.

The aim of Stock of the Week is to give you a tip-of-the-iceberg insight into the kind of things we look at.

So what is the Stock of the Week, now that I’ve teased you enough?

Amphastar Pharmaceuticals (AMPH). The company was set up in California in 1966. So they’re not new. You might think, “Wait a minute… pharmaceuticals? Aren’t we done with pharma given that COVID is over? Or it feels like it, and everybody who’s ever going to do a COVID play has done it.”

Well, this is not about COVID, in actual fact. They make products… for everything from hospitals to clinical settings. They do everything from development… state-of-the-art facilities… all the way up to marketing and manufacturing. So they’re right across the board. That gives them some degree of what you might call vertical integration.

Now, you might have seen some of their products on the shelves. What are the areas they’re involved in, and why am I interested? Deep vein thrombosis… still a problem. Asthma… still a problem – actually a growing problem as the quality of air drops… let alone the fact that the number of people with asthma, for whatever reason, seems to be increasing as well, not just with population growth. But I think it’s more to do with just quality of air, which remains a major problem.

I guess a California company will know all about that, even though they distribute around the U.S.

They’re also involved in opioid overdose treatments. So we know there’s a whole opioid crisis going on, in any event.

So we’ve got quite a few areas. So they’ve got diversity of health. But that’s not really the reason… because that wouldn’t tell me in and of itself that the stock price is worth examining for future growth.

What caught my eye was… first of all, my own proprietary algorithm… value, growth, income, momentum, cash flow, all of those things. I’ve got an 8/10. That’s pretty high. And we look at profitability, or the share price relative to earnings, share price relative to earnings growth, cash flow, cash flow growth, dividend yields, cash flow as well as momentum and performance of the company stock price relative to volatility or risk.

So a whole bunch of information goes in here. CROCI, cash return on capital invested… Those of you who follow me will know that’s so important to me because it’s one of those factors… invented by Deutsche Bank Wealth Management, used by Goldman Sachs Asset Management. It’s that important. Companies in the top portal by this tend to produce 30% per annum return. Not every year – it’s not guaranteed, it’s not a bank account – but overall, over the long term. And this company falls within that fair and square.

Plus, I looked at a whole bunch of other factors.

Yes, I know it’s up 60% so far this year, but I needed that, given that it’d been flat for so many years. And what caught growth this year? Well, public spending on their product sales have jumped up. Just look at the numbers. For me, it was about the cash flow… the ability to convert revenues into cash. Turnover’s been increasing. Yes, I know borrowing increased. However, operating cash flow increased, net asset value increased, profitability increased, total assets increased… and capital expenditure didn’t in any meaningful sense.

That means their ability to take revenues, touch capital conversion… so take those revenues, convert that into free cash flow and then into profits… it’s pretty efficient. You can’t do that unless you got revenues to begin with going up, which they have. You can’t do that unless you are efficient at turning those revenues into profitability in free cash flow, which they are.

Valuation metrics… Yeah, I know forecast price-to-earnings at 23 might seem a bit expensive, but in actual fact, given that this is a tech company – pharmaceuticals is now tech, you know it’s tech – I’m not so worried about that.

Of course, no company ticks every box perfectly and knocks the ball out of the park, but this one’s got a lot of things going for it… enough for it to be my Stock of the Week.

So I hope that gave you a snippet into what we do in GVI Investor and gave you a snippet into what’s going on in the markets, what kinds of things to look out for and the kind of background research we do in-depth.

Thank you all very much.