One of the things that I love about investing is it helps me learn so much about the world.

When I analyze stocks, I get a new understanding of how the world’s moving and what companies are doing to solve some of the biggest global problems… and I learn about the innovative, amazing technologies they’re using.

That’s why I’m so excited about this week’s Stock of the Week.

It’s a biotech company looking to solve some of the world’s biggest medical problems… including chronic conditions, cardiovascular and infectious diseases, and cancer.

The stock has strong momentum… low volatility… and an outstanding Sortino ratio. That means it has a great risk-reward profile.

There’s a lot to like… and I get into it all in my latest video.

Click on the image below to watch it.

Editor’s Note: Want another free pick? Andy’s giving away the name of a completely new type of investment… one that’s outside the volatile stock and crypto markets. Get the details here.

Transcript

Hi, everyone. Welcome to another Stock of the Week.

One of the things that I absolutely love about investing is I learn so much about the world.

You see, when I look at a company – or when my hedge fund provides me with a company and says, “This is one worth looking at” – I get a new understanding of how the world’s moving and what companies are doing what to solve some of the big global problems. It teaches me about global problems and how the corporate world is trying to solve them – and what new, innovative, amazing technologies they’re using.

That’s one of the reasons why I find investing so fascinating. I hope through these Stock of the Week videos, that you, too, get insights beyond just “here’s a name of a company.”

You actually get to understand how the world works, the biggest problems it faces, how companies are trying to solve them… and you get an understanding of how companies become undervalued, or well-valued, and all the bits of it.

Sorry I sound so excited, but I love this stuff, and I want to pass that passion on to you.

So my hedge fund team has come up with a great one. They sent it to me, I looked at it and I said, “Yeah, I like this.”

The Stock of the Week is United Therapeutics (UTHR). They operate as a biotechnology company and engage in the development and commercialization of products to address unmet medical needs of patients with chronic and life-threatening cardiovascular and infectious diseases and cancer.

Cardiovascular… so heart-related… that isn’t going down anytime soon. Infectious disease as well. The world we live in? Demand is going to increase. And sadly, cancer as well.

Its shares are listed on the Nasdaq. In its third quarter financial results, the company achieved the highest revenue in its history. Total revenues in the third quarter of 2022 grew 16% year over year, albeit only to $516 million. So it’s a relatively small company, which means it’s got a lot of potential, a lot of growth.

Let’s look at some of that potential and the financials. On my GVI score, my Growth-Value-Income score, it’s got a 7 out of 10. Now, that’s an algorithm that I created. It’s a proprietary algorithm which looks at the valuation metrics of a company, such as its profitability to share price. It looks at the growth of profits relative to share price. It looks at revenue growth. It looks at dividend yields. It looks at momentum, a whole bunch of things. It weighs those factors and then gives a score out of 10. It makes it easier for me to filter for anything which is 7, 8, 9 or 10, which meets our minimum requirements.

So this is great. That meets it.

CROCI, or cash return on capital invested, is at 10%. Now, you’ll remember, but I’m going to remind you, this was a formula invented by Deutsche Bank. It’s cash return on capital that a company invests. It’s used by Goldman Sachs Asset Management for its wealthiest clients, as part of their wealth management division in picking stocks. And what they found is, companies which are in the top quartile, the top 25% of all companies by CROCI… if held as a basket of stocks, those companies generate 30% per annum returns. Not every year and not every company, but as a basket, 30% on average. Some years more, some years less.

The company’s got strong momentum.

Sortino, now, this is a rarity here. The Sortino is a measure of the average return that the company gets and the risk, or volatility, of missing it. This has got a Sortino of 1.38. It’s above 1.0. That means you’re getting more reward, more average return, for the risk you’re taking. That’s good.

Volatility… only 10%. Return alpha… 9.8%. It’s smashing the market in terms of returns, in other words.

So let’s have a look at some other numbers.

CROCI, as I mentioned, return on capital employed… 13%. Good number. Return on equity… again, a measure of efficiency of the company. How good is it at converting capital into cash?

Okay, forecast growth. Turnover is forecast to grow. Profits, or earnings, before interest and tax… forecast to grow substantially: 73%. Pretax profits are forecast to grow as well.

Valuation… forecast P/E ratio is only trading at a multiple of 14; in other words, the share price compared to its forecasted profits is only a multiple of 14. I think that’s relatively low for what looks like a really solid company.

If you look at those figures, turnover’s going in the right direction. I know borrowing’s increased, but that’s what’s helped boost things. And pretax profits… I know 2014, 2016, they had great pretax profits, but the numbers are going in the right direction.

Total assets… booming. Net asset value… booming as well. So is the share price. It’s pointing in the right direction, that nice smooth trend from pre-COVID days, and it’s continuing in that upward trend.

Now, there are two other things which have really caught my eye.

On a discounted cash flow basis, it looks like it’s about 60% undervalued. Now, no measurement of a company’s value is 100% guaranteed, in the sense that discounted cash flow is something the market could ignore. It can ignore anything, the market, as you well know. But this does look undervalued.

The other thing I want you to look at are the return histograms. Now, they’re based on the past and how the share price has moved. It doesn’t mean that the past is guaranteed to happen again in the future, but were it to continue along the same lines, then as you can see, there’s a relatively low likelihood of having a negative return if you’re holding it for 250 days.

The real thing to worry about is, just to warn you… There is a small possibility that even after five days or 20 days or 50 days, you could be down 20%, even after 50 days. It’s a small possibility, a very small one. But it’s there.

It’s not a particularly volatile stock. It’s very rare to find stocks which have better stock price distributions than this, anyway.

All in all, I really like this Stock of the Week. Thank you all very much.