ScoPo’s Powerplays: ASX health stocks offer bargains galore during tax time sell down
Healthcare and life sciences expert Scott Power, who has been a senior analyst with Morgans Financial for 24 years, explains what the movers and shakers have been doing in ASX health stocks.
Need to pay attention in the meeting your boss just called in case you get quizzed later? How about remembering the perfume fragrance your partner wants for her birthday?
According to a new MIT study, when your brain needs you to pay attention, one way it can do that is to send a burst of noradrenaline, a neuromodulator produced by a structure deep in the brain called the locus coeruleus.
In a study of mice, the MIT team found that a key role of noradrenaline, also known as norepinephrine, is to help the brain learn from surprising outcomes.
Along with signalling surprise, the researchers also discovered noradrenaline helps to stimulate behaviour that leads to a reward, particularly in situations where there is uncertainty over whether a reward will be offered.
Newton professor of neuroscience in MIT’s Department of Brain and Cognitive Sciences, a member of MIT’s Picower Institute for Learning and Memory, and director of the Simons Center for the Social Brain Mriganka Sur said the work shows how important the locus coeruleus is in encoding unexpected events.
“Paying attention to those surprising events is crucial for the brain to take stock of its environment,” Sur said.
Noradrenaline is one of several neuromodulators influence the brain, with others including dopamine, serotonin, and acetylcholine. Unlike neurotransmitters, which enable cell-to-cell communication, neuromodulators are released over large areas of the brain for more general effects.
“Neuromodulatory substances are thought to perfuse large areas of the brain and thereby alter the excitatory or inhibitory drive that neurons are receiving in a more point-to-point fashion,” Sur says.
“This suggests they must have very crucial brain-wide functions that are important for survival and for brain state regulation.”
While much has been discovered about dopamine in motivation and reward pursuit, less is known about the other neuromodulators, including noradrenaline. It has been linked to arousal and boosting alertness, but too much noradrenaline can lead to anxiety.
And in a week where the RBA increased interest rates by 50bp with the cash rate now at 0.85% to curb inflation, ASX health stocks are actually in the green, albeit modestly. By 1pm (AEST) on Friday the S&P/ASX 200 index was down 3.85% in the past five days, while the S&P/ASX 200 healthcare index was up 0.61%, boosted by blood products giant CSL (ASX:CSL) which is up 1.62% for the week.
Power said the broader macro picture continues to drive market with higher interest rates continuing to cause down draft in markets along with tax loss selling as investors clean up portfolios before the end of FY22, results in some big share price movements.
“From a macro perspective we’ve had rising interest rates and the question is now how much further do they have to rise?” he said.
“We’ve had rising inflation and the question is how much further will it rise and when does it start to stabilise and moderate?
“Will it be a month, two months, six months or longer? – my view is we probably have four to six months of volatility.”
Health tests business Lumos Diagnostics (ASX:LDX) this week announced it had completed the institutional component of its $11.2 million capital raise. The company raised ~$8 million via the issue of 41.9 million shares from institutional and sophisticated investors. The retail component is expected to raise a further $3.2 million and opened today, closing on June 23.
Lumos listed on the ASX in July 2021 after a $63 million fund raising but its share price has been hammered, falling ~86% in the past year.
“Lumos has had a horror run since its IPO where its share price was $1.25 and it’s now 14 cents” Power said.
“The company has gone through all their IPO cash and need more and are now are having to offer very sharp discounting to get in investors.”
Lumos offered a 1 for 2.55 pro rata accelerated non-renounceable entitlement offer. Participants will also get 1 free option for every 1 share subscribed for with an exercise price of 30 cents and an expiry of November 30, 2022.
“Any companies needing funding over the next six months are going to have offer very attractive terms,” Power said.
By contrast, hearing device company Audeara (ASX:AUA) informed the market on Tuesday it had undergone a $1 million private placement with strategic investor Hsin-Chieh “Bill” Peng. Audeara issued 10,000,000 shares at 10 cents/share. The price represented a 11% premium to Monday’s closing price.
The company plans on using the funds to provide working capital for an expanding sales team, forward stock ordering and logistics.
“It’s interesting in itself that they were able to secure that funding and I think we are going to see more strategic investors taking advantage of weaker share prices,” Power said.
The Audeara share price has risen ~13% in the past five days to 11 cents.
Power said a lot of health stocks continue to feel pressure, especially during this June period a traditional time when Australian investors crystalise losses for the financial year.
“A lot of companies we have talked about before are getting absolutely smoked at the moment and I can only put it down to tax loss selling,” he said.
Health imaging company Volpara Health Technologies (ASX:VHT), which specialises in the early detection of breast cancer, is down ~24% in the past five days to 55 cents.
“It’s share price hasn’t been at 55 cents for the well over two years,” Power said.
Volpara has found itself removed from the S&P/ASX All Technology Index (ASX:XTX), but Power doesn’t think it will have a huge impact.
“It’s not helpful but I don’t think it’s particularly material as that only really applies to institutional investors who may have mandates,” he said.
“However, most of the Volpara register are high net worth individuals or retail investors and a small number of institutions on the register.”
Cardiac-focused Silicon-Valley based EBR Systems (ASX:EBR) is also down ~8% this week to 40 cents. EBR’s proprietary WiSE Technology is designed to eliminate the need for a lead to the left ventricle in Cardiac Re-synchronization Therapy (CRT), and the associated complications.
EBR aims to expand this technology into other applications in the $11 billion cardiac rhythm management market.
“It’s issue price was $1.08 when it listed back in November 2021 so is now at about a 62% discount to its original offer price,” Power said.
Medtech company Impedimed (ASX:IPD) has also seen its shares fall ~8.5% this week to 7.6 cents. Global pharmaceutical giant AstraZeneca using its SOZO Digital Health Platform to track patient fluid volume for two clinical trials . The first trial is focused on heart failure and chronic kidney disease, and the second phase only on chronic kidney disease.
“Impedimed is sitting on a lot of cash and growing revenue streams but the market is just not showing any interest,” Power said.
As quality health stocks experience heavy sell-downs Power said it’s hard to single out one for investors. He said instead it’s a good time to start looking at quality companies hard hit during market volatility and with further tax loss selling in June. He said the likes of Impedimed, Volpara, EBR Systems and health imaging company Mach 7 (ASX:M7T) all represent value.
“Rather than having stock of the week I think you need to start just having a portfolio approach and putting some money into four of your favourite stocks,” he said.
“Some stocks have just been hit so hard it doesn’t make any sense as to where they are trading and I think once we get through June 30 we will see a bounce in some of the names I’ve mentioned.
“We know these companies well and they are trading at prices we have not seen for a very long time and from an operation perspective have come a long way.”
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