This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The global smartphone market has had the worst year in its history, primarily on account of the COVID-19 pandemic that has decimated discretionary spending while simultaneously disrupting consumer electronics supply chains. Total shipments have seen the biggest drops in history throughout 2020, with some markets like India even getting cut in half.

Some smartphone manufacturers have already started to release handsets equipped with 5G, and Apple Inc‘s (NASDAQ: AAPL) highly anticipated foray into 5G this year could help save the market.

Bouncing back in 2021

Canalys released its latest estimates for the worldwide smartphone industry this week, with total unit volumes for 2020 expected to decline by 11%. Total 5G smartphone shipments this year are forecast to be approximately 280 million, driven by relatively affordable 5G handsets being sold in China, the largest smartphone market in the world. Hopefully, 5G product releases at the end of 2020 will spur momentum heading into 2021, when total volumes should bounce back by 10% to 1.3 billion.

“Gradual reopening of offline stores, improving logistics and production have provided necessary uplift for most markets to move into a more stabilized second half of 2020,” Canalys senior analyst Ben Stanton said in the release. “And with the holiday season about to kick off, there is no doubt 5G is about to be thrust into spotlight.”

Commoditisation of 5G phones in China, which helps bring prices down, will be crucial in boosting demand this year, according to Canalys. 5G smartphones that cost $400 or less are expected to account for nearly 60% of total smartphone volumes in China in 2021, a much higher proportion than in other mature markets like North America or Europe. Note that Apple tends to have a stronger position in developed markets and its flagship 5G iPhones this year will cost well above $400.

“Fairly aggressively-priced 5G devices are already available in Europe, such as the Motorola G 5G Plus, and the Xiaomi Mi 10 Lite 5G,” Stanton added. “But with many Apple-centric markets, such as the UK, there is a large base of customers willing to wait for an iPhone with 5G.”

Average selling prices (ASPs) of 5G handsets sold in Europe should steadily decline as well due to competition, with Canalys modeling that figure at $765 in 2021 and $477 in 2024.

Even though many wireless carriers around the world are still in early stages of 5G deployments and there are important nuances regarding the types of speeds that 5G can offer, carriers and smartphone manufacturers are doing a good job in creating interest and hype around the next-generation technology, which will push 5G penetration higher. Canalys analyst Shengtao Jin expects 5G penetration in China to top 80% within the next year.

Canalys estimates that total 5G shipments will soar by 95% to reach 544 million in 2021, which would represent over 40% of all units sold.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

More reading

• Correction or crash for ASX 200 shares?
• Tech share prices are down but not out. When should you buy?
• 3 ASX high-growth ETFs growth investors can’t ignore
• 4 things learned from Apple and Tesla stock splits
• ASX 200 Weekly Wrap: Friday crash pulls ASX back below 6,000 points

Evan Niu, CFA owns shares of Apple. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Apple. The Motley Fool Australia has recommended Apple. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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The Freedom Foods Group Ltd (ASX: FNP) share price has been suspended from trade since 24 June following the shocking developments that occurred at the diversified food company over the last 12 months.

However, this morning it took a step forward towards returning to the ASX boards in the not so distant future.

What did Freedom Foods announce?

According to the release, Freedom Foods has secured the ongoing support of its principal lenders and majority shareholder. This ensures access to financial facilities while the company undertakes its planned recapitalisation.

Freedom Foods has agreed a standstill deed with its two main lenders, HSBC and National Australia Bank Ltd (ASX: NAB), regarding financing facilities with those lenders.

This agreement is effective until 30 November 2020 and is subject to the company meeting certain milestones relating to the progression of its recapitalisation plan.

In addition to this, with the support of a guarantee from an entity related to majority shareholder Arrovest Pty Limited, HSBC and NAB have also agreed to continue to make certain liquidity facilities available to the company during the standstill period.

Freedom Foods’s Interim Chief Executive Officer and major shareholder, Michael Perich, commented: “We are grateful for the ongoing support of our financiers and our majority shareholder. These agreements provide us with the financial support and flexibility we need to ensure the business continues to perform at its best while we pursue recapitalisation options.”

What now?

The company is currently being advised on its strategic options by Moelis Australia and its shares will remain in voluntary suspension until at least 30 October 2020 at the company’s request.

Until then, the company intends to continue to keep investors up to date with material developments in accordance with its continuous disclosure requirements.

More reading

• Why the Retail Food Group (ASX:RFG) share price is up 4%
• Why BrainChip, Evolution, Nearmap, & Zip shares are tumbling lower
• Nearmap (ASX:NEA) share price tumbles 11% following capital raising
• Why IGO, IPH, Jumbo, & Whitehaven shares are pushing higher today
• Why Tesla stock jumped again on Thursday

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Freedom Foods Group Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The IGO Ltd (ASX: IGO) share price is a rare bright spot on the market today as it considers putting its stake in Tropicana on the auction block.

Shares in the miner jumped 4.8% to $4.61 in early trade when the S&P/ASX 200 Index (Index:^AXJO) tumbled 1.2%.

Other mining stocks also lost ground as commodities retreated. The OZ Minerals Limited (ASX: OZL) share price fell 1.4% to $14.40, the Rio Tinto Limited (ASX: RIO) share price slipped 0.6% to $99.86 and BHP Group Ltd (ASX: BHP) gave up 1.3% to $36.49.

Sun shines on Tropicana sale

But investors were clearly taken with IGO’s decision to explore options for its 30% holding in the Tropicana gold mine.

Tropicana is a pain in the posterior for shareholders. It was a blemish on IGO’s otherwise pleasing full year profits that was boosted by its outperforming Novo nickel mine.

It seems management may be finally biting the bullet and there’s no better time to flog an underperforming asset than during a bull run.

Unlocking value in the IGO share price

The gold price is trading near record highs of just over US$2,000 an ounce and IGO confessed that unsolicited suitors have been knocking on its door.

This prompted management to undertake a strategic review of Tropicana, which will involve an analysis of various opportunities to unlock value in the asset.

This doesn’t only include selling it off to the highest bidder but to look at underground development and exploration.

IGO will work with its joint venture partner on Tropicana, AngloGold Ashanti Australia, to undertake the review.

IGO to focus on green energy

Investors should stay tuned as this work is expected to be completed in three to six months. That’s also enough time to firm up any offers for the asset.

“Tropicana is clearly a high-quality and significant asset within IGO’s portfolio, however IGO’s strategic focus is on commodities that are critical to clean energy,” said its CEO Peter Bradford.

“In the current gold price environment, we do not believe that IGO’s share price fully reflects the value of Tropicana.”

IGO generates most of its earnings from nickel, which is a key ingredient in the manufacture of batteries.

Is the IGO share price at a turning point?

The miner reported record FY20 revenue and underlying free cash flow of $892 million and $311 million, respectively.

Despite this, IGO is underperforming many of its peers. The IGO share price is down close to 30% over the past year when others like OZ Minerals have rallied by over 50%.

More reading

• Rio Tinto (ASX:RIO) announces CEO exit following Juukan destruction
• Up 9.2% in 1 day, is the Clinuvel Pharmaceuticals (ASX:CUV) share price a buy?
• 5 things to watch on the ASX 200 on Friday
• ASX 200 rises 0.5%, gold miners glitter
• Why the Rio Tinto share price is outperforming its peers

Motley Fool contributor Brendon Lau owns shares of BHP Billiton Limited, OZ Minerals Limited, and Rio Tinto Ltd. Connect with me on Twitter @brenlau.

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Telstra Corporation Ltd (ASX: TLS) share price has been a particularly poor performer over the last few weeks.

Since this time last month the telco giant’s shares have fallen a disappointing 16%.

Why is the Telstra share price sinking lower?

Investors have been selling Telstra’s shares following the release of its full year results for FY 2020.

Although the company delivered a solid result which was in line with its guidance, its commentary on the year ahead spooked investors.

Especially given how its earnings guidance implies that its 16 cents per share dividend would not be sustainable.

As I have mentioned many times before, I believe the selloff has been unjustified and that Telstra could still maintain its dividend if it changes its dividend policy to be based on its free cash flow instead of earnings. This is because the former is now a lot higher than the latter due to its accounting.

One analyst that agrees with this is James Gerrish from Shaw and Partners.

What did Shaw and Partners say?

On LiveWire Markets Mr Gerrish revealed that Shaw and Partners added Telstra to its income portfolio this week on the belief that its dividend is sustainable.

He said: “On an earnings basis, the 16c dividend is not sustainable given TLS will likely generate around 14c EPS in FY21 & FY22 before rising from there, however TLS have shifted their dividend focus to be more heavily aligned with free-cashflow (FCF). In terms of that number, which seems to now be the key for the dividend, it’s expected to be around 23c in FY21 & FY22 and rising from there.”

Shaw and Partners feels the market is being unnecessarily bearish and this is a buying opportunity for investors.

Mr Gerrish added: “Given the rhetoric around free-cash-flow that we saw at the recent result, it seems likely that the market is too bearish on the sustainability of the TLS dividend given its being anchored to EPS, not FCF.”

“While earnings are under some pressure, they are expected to improve over the coming years (I know I know – it’s been like this for ever), however worth bearing in mind that TLS have made some tough decisions in recent times to get the business on a better footing to deliver that much anticipated growth,” he explained.

Where is the Telstra share price heading?

Shaw and Partners appears to see $3.50 as fair value if it sustains its dividend and I would have to agree with that.

The analysts concluded: “In broad terms, a sustainable dividend we think is enough to support the share price up to about a 4.5% yield which equates to a SP around $3.50, then if earnings can show some growth, we think there is a very plausible path for TLS to trade back up towards $4.00.”

More reading

• Why I would buy Telstra (ASX:TLS) and this outstanding ASX 50 share
• Why I would buy Telstra (ASX:TLS) and 1 other ultra-cheap ASX share today
• Whispir (ASX:WSP) share price sinks 9.5% lower on major shareholder sell-down
• Why the Telstra share price is a good buy for dividends
• 3 ASX shares for growth, income, and value investors to buy right now

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Telstra Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The prospects for many dividend shares may be relatively uncertain after the market crash. In fact, some companies have cancelled their dividends to provide them with greater financial stability in the short run.

However, it is still possible to build a portfolio of dividend stocks that produces a growing passive income. Through obtaining a wide margin of safety and focusing on a company’s dividend cover, you can select the best stocks to buy right now.

Dividend cover after a market crash

The recent market crash has brought risk more sharply into focus for many investors. After all, the weak global economic outlook may mean that the operating conditions for many businesses come under pressure. This may make it more difficult for them to afford their current level of shareholder payouts.

Therefore, it is prudent to check the affordability of a company’s dividend before buying it. This can be done through dividing its net profit by dividends paid to provide a dividend cover multiple. A figure of one means that profits covered dividends once, while a higher figure means the company in question had headroom when making shareholder payouts.

Given the uncertain economic outlook and the potential for a second market crash, investors may wish to only purchase stocks that have ample headroom when making their dividend payouts. Otherwise, the chances of a dividend cut may be relatively high should the economic outlook deteriorate further.

Long-term dividend growth potential

As well as assessing the affordability of a company’s dividend after the market crash, understanding its potential to grow shareholder payouts in the long run could be a shrewd move. It may enable you to not only enjoy a higher income return compared to other assets today, but to obtain an inflation-beating rate of growth in the coming years that boosts your financial outlook.

Assessing a company’s dividend growth potential is, of course, subjective. However, by focusing on its growth strategy, considering the size of its economic moat, and understanding how its operating environment may be impacted by coronavirus, you can paint a picture of its potential for rising profitability and higher dividends.

A margin of safety

While the market crash has caused many dividend stocks to trade at dirt-cheap prices, some companies may merit a low valuation. For example, they may struggle to grow profitability in an uncertain economic period, or may endure a painful process of changing their business model in response to changing consumer trends

Therefore, it could be a good idea to demand a wide margin of safety when buying dividend stocks. This may help to reduce your overall risks, as well as improve your long-term total return prospects as the stock market gradually recovers from the challenges it has faced in 2020.

More reading

• IGO share price surges on potential sale of Tropicana
• Is the Telstra (ASX:TLS) dividend sustainable? This analysts thinks it is
• A guide to using the dollar-cost averaging strategy
• Should you buy these beaten down ASX 200 shares?
• Rio Tinto (ASX:RIO) announces CEO exit following Juukan destruction

Motley Fool contributor Peter Stephens has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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Many investors leap into the share market with a lump sum amount hoping that all of their new ASX shares will rise. Unfortunately, this is hardly the case. While some ASX shares will indeed be in positive territory, chances are there will be a few in the red.

Without doing the proper research on the shares beforehand, you are exposing yourself to a great risk of it falling in value. It pays to have a plan of attack to protect your portfolio should your quality share drop in value due to small company hiccups or macroenvironmental factors.

Thus, enter the dollar-cost averaging strategy (DCA).

What is dollar-cost averaging?

DCA is a simple strategy that involves investing an amount of funds in the same ASX share at regular intervals over a period of time.

For example, say you invested $1,000 in Zip Co Ltd (ASX:Z1P) shares at $6.00 a piece. You would own 166 shares of Zip shares. If the share price of Zip fell by 10% (to $5.40) after you had bought the shares, the current value would be $896.40.

Now, some investors may be happy to just wait until the Zip share price goes back past $6.00 again before possibly selling or just sit on their original investment for the long term. However, if you employed a DCA strategy, when the Zip share price falls to $4.00, you might possibly buy another $1,000 worth. You would then have your original 166 shares plus an extra 250 shares from your latest investment.

This would total 416 Zip shares at a cost basis of $4.80. It may not seem like much, but this 20% discount is just from your first regular investment interval. Eventually, you would smooth out your purchase price over time and ensure you’re not dumping your money into the one share at a high price point.

DCA reduces the impact of market volatility on the overall purchase. It is known as a risk-reduction tool and can be very effective, especially in uncertain climates like the one we currently face.

It’s worth considering, however, that if you are buying Zip shares at regular intervals and the price keeps going up, you will be increasing your cost basis and essentially getting less value than if your had initially purchased all the shares at once. Similarly, should the Zip share price keep falling and not recover at all, DCA would not be a wise strategy to implement.

Foolish takeaway

DCA is suited to investors with a lower risk tolerance and a long-term investment horizon.

I apply the DCA strategy across most of my ASX share purchases and have done pretty well with it. 

Tiptoeing in small increments during a market dominated by COVID-19 news will protect your portfolio and help to avoid slumps. Obviously there is no guarantee of good returns on any investment, and it is still important to research any company you wish to own a part of.

But overall, I believe company research and using the DCA strategy is a great way to build serious wealth.

More reading

• Is the Zip (ASX:Z1P) share price a buy in the tech crash?
• Why the Laybuy (ASX:LBY) share price is tanking today
• The Zip (ASX:Z1P) share price is down 30% since August: is it a buy? 
• Afterpay and Brainchip were among the most traded shares on the ASX last week
• Afterpay, Zip founders team up for ‘Aussie Robinhood’ app

Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of ZIPCOLTD FPO. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The recent market volatility has been very disappointing and weighed heavily on a number of ASX shares.

One positive is that I believe it has dragged the shares of some quality companies down to very attractive levels.

Two beaten down ASX 200 shares that I would buy are listed below. Here’s why I think they could be good value:

Altium Limited (ASX: ALU)

The Altium share price has been caught up in the tech selloff and is down 22% from its high. While this is disappointing for shareholders, I believe it is a buying opportunity for non-shareholders. This is because I’m confident that this electronic design software company has an exceptionally bright future ahead of it.

The key product in its portfolio is Altium Designer, which has exposure to the rapidly growing Internet of Things and artificial intelligence markets. These two markets are underpinning the proliferation of electronic devices globally and look set to drive strong demand for Altium Designer and its newly released cloud-based Altium 365 offering over the coming years. Management is aiming to grow its revenue to US$500 million by 2025-2026. This compares to revenue of US$189 million in FY 2020. Due to the quality of its offering and favourable industry tailwinds, I’m very confident it will get there.

CSL Limited (ASX: CSL)

The CSL share price has fallen just under 18% from its 52-week high. I think this is a buying opportunity for investors that are looking for long term options. This is because I believe the biotherapeutics giant is perfectly positioned to deliver consistently solid earnings growth over the next decade thanks to its CSL Behring and Seqirus businesses.

CSL Behring is the global leader in plasma therapies and the name behind immunoglobulins products such as Privgen and Hizentra. It also owns haemophilia products Idelvion and Afstyla, among others. The Seqirus business is the second-largest player in the influenza vaccines industry. It plans to manufacture COVID-19 vaccines for Australia should they be successfully developed. Both businesses are also investing heavily in research and development activities and have a large number of potentially lucrative therapies and vaccines at various stages of development.

More reading

• 3 outstanding ASX shares to buy and hold for decades
• Why you shouldn’t be concerned by the high PE multiples of ASX tech shares
• Where to invest your first $1,000 into ASX shares
• 5 things to watch on the ASX 200 on Thursday
• 2 ASX shares I’d buy if this crash gets worse

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Altium. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of CSL Ltd. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Rio Tinto Limited (ASX: RIO) share price has come under pressure today after the mining giant announced the impending exit of its chief executive.

At the time of writing the Rio Tinto share price is down almost 1% to $99.70.

What did Rio Tinto announce?

This morning Rio Tinto revealed that following a review of Cultural Heritage Management, which was undertaken in response to the destruction of the Juukan rockshelters in May, the board has been engaging extensively with shareholders, Traditional Owners, Indigenous leaders, and other stakeholders.

While the company notes that there has been support for the changes recommended by the review, significant stakeholders have expressed concerns about executive accountability for the failings identified.

In light of this, by mutual agreement, Mr J-S Jacques will step down from his role as an Executive Director and Chief Executive of Rio Tinto.

A search for a successor has begun and Mr Jacques will remain in his role until the earlier of an appointment being made or 31 March 2021. This is to ensure business continuity and maintain the strong performance of its global operations during COVID-19.

Other executive changes.

It isn’t just J-S Jacques that will be exiting the company. Following him will be the Chief Executive of Iron Ore, Chris Salisbury. He has stepped down from the role with immediate effect and will be replaced on an interim basis by Ivan Vella. Mr Vella is currently Managing Director for Rail, Port & Core Services within Rio Tinto Iron Ore.

Simone Niven will also step down as Group Executive, Corporate Relations, and will leave the company on 31 December 2020 after completing an orderly transition of her responsibilities.

“What happened at Juukan was wrong”.

Rio Tinto chairman Simon Thompson commented: “What happened at Juukan was wrong and we are determined to ensure that the destruction of a heritage site of such exceptional archaeological and cultural significance never occurs again at a Rio Tinto operation.”

“We are also determined to regain the trust of the Puutu Kunti Kurrama and Pinikura people and other Traditional Owners. We have listened to our stakeholders’ concerns that a lack of individual accountability undermines the Group’s ability to rebuild that trust and to move forward to implement the changes identified in the Board Review.”

“I would like to thank J-S for his strong leadership of the Group since becoming Chief Executive in 2016. During that time, he has led the best safety performance in Rio Tinto’s history, simplified the portfolio, divested the Group’s coal assets, established a clear strategy to address climate change and generated exceptional shareholder returns. His leadership during the COVID-19 pandemic, in particular, has been exemplary,” he concluded.

More reading

• IGO share price surges on potential sale of Tropicana
• Why the Rio Tinto share price is outperforming its peers
• Why you should use the market sell-off to buy these ASX stocks
• Half of ASX 200 stocks at risk as China-Australia relations hit new low
• ASX 200 Weekly Wrap: Friday crash pulls ASX back below 6,000 points

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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I recently wrote about my number 1 type of ASX share avoid at all cost. But there are some more terrible ASX shares that I will never buy. My original article goes into more detail about why you want to avoid terrible ASX shares, but here is a summary:

• If you lose 30% of your money, you need to make 50% to break even.
• Legendary investor Warren Buffett agrees and has provided lessons on this in the past.

So with that in mind, here are 2 terrible ASX shares that I will probably never buy.

Government supported industries

Government support (like subsidies or tariffs) or revenue (like government contracts) can seem like a great reason to buy an ASX share. You have a debtor that won’t go broke. You have a guaranteed revenue floor per customer. You have an artificial advantage over other countries. However in my opinion, over the long term I believe that these incentives create shares that are potentially terrible investments.

Economic incentives such as subsidies or protection like tariffs create uncompetitive and inefficient businesses. I believe that this can sometimes lead to terrible investments. A great example of this is in childcare. Providers such as G8 Education Limited (ASX: GEM) were incentivised to make investments to increase capacity at their centres or even buy more centres. However, the businesses were not disciplined in their growth. A quick look at a 3 or 5-year price chart paints an ugly picture.

Hidden gems

This isn’t true for all ASX shares though. Some shares such as Electro Optic Systems Hldg Ltd (ASX: EOS) can (and I believe will) do well in the future with the government help. However it is worth noting that Electro is operating in the defence industry, which along with other necessary industries like agriculture, can be special cases for regulation and the like.

2 terrible ASX shares

Motley Fool co-Founder David Gardner is in my opinion one of the best investors of the 20th century. His numbers back that up. A favourite phrase of his is, “winners, win”. 

I believe that the inverse is also true. Flawed businesses such as AMP Limited (ASX: AMP) or Virgin Australia Holdings Ltd (ASX:VAH), that have destroyed investor capital over decades, will potentially continue to do so. Turning around a business is difficult for a number of reasons. It could be brand damage, terrible business or market economics, poor leadership, or simply a bad company culture.

There are more than enough great ASX shares to buy out there. There’s no need to risk your cash on a value trap.

The Foolish bottom line

Share traders might be able to make money through short term volatility, but they aren’t going to make the exponential returns that the share market, compound interest and time provide. Long term investors are best to steer clear of these capital destroying terrible ASX shares.

More reading

• Will the S&P downgrade derail the recovery in the AMP share price?
• Broker picks best ASX small cap stocks to buy from the reporting season
• ASX 200 Weekly Wrap: Friday crash pulls ASX back below 6,000 points
• 5 things to watch on the ASX 200 on Monday
• 5 things to watch on the ASX 200 next week

Lloyd Prout has no position in any of the stocks mentioned and expresses his own opinions. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Electro Optic Systems Holdings Limited. The Motley Fool Australia has recommended Electro Optic Systems Holdings Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Clinuvel Pharmaceuticals Limited (ASX: CUV) share price had a good day on Thursday. Shares in the Aussie pharma group rocketed 9.2% higher to lead the S&P/ASX 200 Index (ASX: XJO) winners.

So, what’s causing a surge in Aussie pharma shares like Clinuvel and is it still in the buy zone?

What does Clinuvel Pharmaceuticals do?

Clinuvel is an Australian-headquartered, global pharmaceutical company. The group focuses on developing and delivering treatments for patients “with a range of severe genetic and skin disorders”.

The company has operations across photomedicine, pharmaceutical and photocare within the broader industry.

As at Thursday’s close, the Clinuvel share price was trading at $21.51 per share with a market capitalisation of $1.1 billion.

Why did the Clinuvel Pharmaceuticals share price surge higher?

The big announcement yesterday was an expansion of Clinuvel’s SCENESSE drug (afamelanotide 16mg) to treat the disease xeroderma pigmentosum (XP).

Clinuvel has made great strides in the development and application of SCENESSE for a number of years. Yesterday’s announcement is the latest step as it looks to treat XP, a rare genetic disorder affecting one in one million people in the USA and Europe.

That was good news for shareholders who were quick to buy in and bid up the Clinuvel Pharmaceuticals share price.

Is the Aussie pharma share still in the buy zone?

Despite yesterday’s surge, the Clinuvel Pharmaceuticals share price is down 24.9% for the year.

Given that it also trades at a price to earnings (P/E) ratio of 65.2, I’m not sure I’m keen on buying just yet.

Thursday’s announcement was a promising step but I think I’d like to see more positive test results before buying.

In the meantime, I think there are some other strong candidates in the biotech and pharmaceuticals sector.

Personally, I like the look of Polynovo Ltd (ASX: PNV) as it expands into new, lucrative markets with its NovoSorb BTM technology.

More reading

• 5 things to watch on the ASX 200 on Friday
• 2 exciting ASX growth shares to buy in September
• ASX 200 rises 0.5%, gold miners glitter
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Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of POLYNOVO FPO. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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