Here are three cheap UK shares I’d consider buying if they fall far in price. Each currently changes hands for less than £3.50.

A defensive hero

We have to spend to fill our bellies even when broader economic conditions worsen. This is why I think Devro (LSE: DVO) could be a top stock to buy if it falls amid a broader stock market crash. This cheap UK share manufactures sausage skins that it sells across developed and emerging markets.

I’ve long liked Devro because of the massive investment it has made in fast-growing developing territories, China, in particular. Meat demand in these geographies is tipped to keep rising strongly as personal income levels rise. Indeed, Devro’s latest financials said that it enjoyed strong growth in Latin America, the Middle East, and Africa during the four months to October. I’d buy the business despite the threat posed to its operations by the growing popularity of vegetarian and vegan diets.

Riding the petcare boom

People in Europe are spending more and more money to keep their companion animals happy and healthy. This is what makes Animalcare Group (LSE: ANCR) such an attractive stock in my book. Analysts at the Business Research Company think the global animal medicine market will be worth $85.1bn by 2030. That compares with the $42.5bn it was estimated at in 2019.

I am aware, however, that Animalcare (like Devro) could be hit by the rise of meat-free diets. This is because the business supplies medicines for livestock as well as for pets in Europe. Indeed, a report by Smart Protein over the summer showed that 46% of Europeans had reduced their meat consumption on a 12-month basis. Still, I think the bright outlook for the petcare market offsets this threat.

A consumer goods colossus

I bought Unilever shares because I considered it to be a relatively secure place to park my money. Products like Dove soap, Magnum ice cream, and Domestic bleach give it a market-leading position in ultra-defensive food and household and personal goods markets. I am also considering snapping up PZ Cussons (LSE: PZC) for my portfolio because it shares the same qualities. Brands like Imperial Leather soaps have been excellent sales generators for the business for decades now.

PZ Cussons has a great track record of innovating its powerhouse labels to keep consumers interested. And it has supercharged marketing investment in the likes of Imperial Leather, too. I also reckon the business will benefit from changing consumer attitudes towards hygiene following the Covid-19 outbreak. Despite the threat of rising raw material costs, I think PZ Cussons (like Unilever) could thrive even if the economic recovery runs out of steam.

Buying a pharma stock like this is risky business as drugs production is naturally complex and failures at the lab bench can cost a fortune in lost revenues and additional development costs. But that’s not to say that investment here is a bad idea. Analysts at Grand View Research think the animal medicines market will grow 80% between now and 2028 when it will be worth $88.7bn.

An advantage that Animalcare has over CVS is its huge exposure to the livestock industry. It’s a market that’s set for massive growth as global meat consumption is set to rise considerably. Revenues at Animalcare soared 13.3% in the six months to June. And the business has committed to increasing investment in its product pipeline over the next couple of years to keep turnover ripping higher.

Market leader

I’m also considering buying penny stock HSS Hire Group (LSE: HSS) right now. It’s a market leader in the tool and equipment rental industry, with around 250 stores running the length and breadth of the country. This gives it the scope to capitalise on the UK’s home improvement boom.

Spending on DIY projects rocketed during the Covid-19 lockdowns. And the amount Britons spend on home remodelling looks set to remain strong too, underpinned by a strong domestic housing market and the huge savings people accrued during the pandemic.

I think HSS has the clout to capitalise on these favourable conditions to the max. And I also like the huge investment the firm has made to improve its digital operations, enabling it to exploit the e-commerce boom more fully. I’d buy this cheap UK share despite the fact it operates in a highly-competitive marketplace.

I’d buy this cheap UK share too!

I also think Halfords Group (LSE: HFD) is another great low-cost stock for me. That’s even though the retailer’s profits can fall sharply when economic conditions worsen and consumer spending comes under the cosh.

As you might know, Halfords sells huge volumes of car accessories and provides auto servicing and maintenance to its customers too. It is also the biggest seller of bicycles and cycle parts in the country.

This latter role is what makes it such an attractive stock, in my opinion. Bike sales are going through the roof as people seek a more environmentally-friendly ways to get around. The rising importance of personal fitness with consumers is also lighting up sales.

Demand for bikes should also benefit from massive government spending to upgrade cycling infrastructure in the UK. Halfords, with its position as a one-stop-shop for everything bicycle related, and home to extremely-popular brands such as Boardman and Pendleton stands to gain enormously in this environment.

I first bought CVS Group because the amount people spend to take care of their animals has soared in recent years. The onset of Covid-19, and the subsequent impact on pet adoption rates, has given UK shares like this an extra shot in the arm too. Latest financials from Animalcare showed that the boom in companion animal ownership lifted revenues 13% higher between January and June as demand for its drugs soared.

Buying pharmaceutical shares can be risky business. Drugs can fail at the testing stage and regulators can refuse to sign a product off for sale. This can create mammoth additional costs and leave a gaping hole in the revenues column.

What’s more, Animalcare’s high valuation leaves the stock in danger of a sharp share price reversal if it does indeed encounter such problems. City analysts think earnings at the UK healthcare share will rise 4% in 2021. Consequently it trades on a hefty forward price-to-earnings (P/E) ratio of around 33 times.

Why I’d still buy this UK share

That said, I’d still consider investing in Animalcare today. This is not just because the rate at which the animal drugs market is set to explode. Statista says the animal medicine market will be worth $68bn by 2023, up more than 60% from 2019 levels.

It’s also because Animalcare has a packed pipeline of products such as canine osteoarthritis pain reliever Daxocox which is set for launch in late 2020. As well, I think the pharma play’s decision to concentrate on higher-margin novel products over generic drugs could pay off handsomely.

The A Team

Team17 Group (LSE: TM17) is another top UK share that doesn’t come cheap. The number crunchers think earnings here will rise 5% in 2021, resulting in a forward P/E ratio of approximately 41 times.

However, I’d take advantage of a recent share price slump for the video games developer. Indeed, I’d buy it with one eye on results which are due to come out (on Tuesday, 14 September). I think this could remind the market of its brilliant investment potential as the video games market goes from strength to strength. Recent data shows the gaming industry is now worth more than the movie and music industries combined.

Team17’s broad selection of popular games helped revenues surge 34% in 2020 and 43% the year before that. Now the video games market is massively competitive and there’s no guarantee that a future title will prove a hit. But I like this UK share’s track record and think it could be one of the best stocks I could buy to ride the gaming revolution.

According to a Fortune Business Insight report, the worldwide vet drugs market will surge to $27.6bn by 2025. This would represent an almost-$10bn jump in a mere eight years. It also suggests a healthy compound annual growth rate of 5.6%. And it’s a market which Animalcare Group (LSE: ANCR) is well placed to capitalise on.

Moving back into growth?

This AIM-quoted business develops, supplies and markets various products and services to vets across the world. Trading here hasn’t been that strong of late, sure. Sales fell 1.5% in 2019, it said last week, because of supply-side issues and falling use of antibiotics for livestock.

However, the launch of new products recently should help it recover. Animalcare cut the ribbon on four new drugs last year alone, and hopes to receive regulatory sign off on another in 2020. It also plans to submit a pain-relieving treatment for approval this quarter.

City analysts expect Animalcare to bounce back into the black with a 2% earnings rise this year. And predictions of improving momentum lead to expectations of a 6% bottom-line increase in 2021.

Balance sheet betterment

The huge improvement Animalcare is making to its balance sheet bodes well for the future too. Underlying cash conversion rose to 92.3% in the first half of 2019, up from 80% the year before. And the business confirmed last month it expects to report a “significant improvement” in the rate when full-year results come out on 31 March.

Thanks to this exceptional cash conversion net debt is toppling too. This fell by around a third year-on-year in 2019 to £15.9m, Animalcare has said. This further bolsters the company’s financial firepower when it comes to investing in R&D to drive future growth.

Animal magic

Now Animalcare isn’t exactly cheap. Not on paper at least. At current prices it carries a forward P/E ratio of 16.2 times. Such a reading may put off many stock pickers given the supply-related issues it’s had of late too.

I consider this reading to be quite undemanding though, when you consider the company’s immense structural opportunities in the next decade and beyond. Besides, those supply problems it experienced with third-party manufacturers last year are a thing of the past.

In fact, the petcare specialist still trades at a considerable discount to some of its industry rivals on the back of these previous troubles. Fellow drugmaker Dechra Pharmaceuticals for instance trades on a forward P/E multiple of above 30 times. Those looking for solid growth prospects at great value need to give Animalcare some close attention today.

As my colleague Edward Sheldon recently commented, the world is set to experience a boom in the number of so-called silver surfers in the coming decades, a surge in the number of citizens over the age of 60. With this comes rising healthcare demand, naturally, and this is a phenomenon that GlaxoSmithKline, with its broad range of treatments, is in prime position to exploit.

This isn’t the only reason to pile in to GlaxoSmithKline today. Investors in the pharmaceuticals arena need to be prepared for long, frustrating and often extremely-expensive product launch delays in the event of poor testing data and/or the thumbs-down from regulators. The FTSE 100 firm has a great track record of getting its products to market relatively quickly, however, a critical quality in recent years as the business has suffered from crushing patent losses such as that of Advair.

Hospitals hero

Investors still concerned about the unpredictability surrounding drugs pipelines may be tempted to buy in to fellow Footsie share NMC Health (LSE: NMC) instead.

Like GlaxoSmithKline, the private healthcare provider is also in great shape to ride the boom of ageing citizens. It is, however, involved in offering a range of medical services from gynaecology and obstetrics though to drugs dispensing, although it is probably more famous for its hospital network which spans the United Arab Emirates.

In total NMC can actually boast a network of 185 facilities in 17 countries, a footprint that has been helped by rampant acquisition activity. It’s well placed to benefit from citizens’ booming wealth in the Emirates, but it is not content to rest on the exceptional emerging market revenues opportunities that it has. More specifically, it has stated its intention in recent times to get a slice of the fast-growing fertility clinic market and is looking to open a swathe of such clinics across Europe.

A pet pick

Looking at the business of healthcare though a different lens, Animalcare (LSE: ANCR) is a very-promising pharmaceuticals play focused on helping our sick four-legged friends. The business of providing medicines to both agricultural and companion animals is becoming increasingly large, and thanks to its exceptional product ranges things look exceptionally healthy for the AIM-quoted firm.

Animalcare’s operations have been given a huge boost following the acquisition of Ecuphar last year, a move that has boosted its geographical reach as well as its operational clout. The rationale of the move was underlined by news released this week that revenues from pet products jumped almost 70% year-on-year between January and June, to £23.6m.

And investors should be encouraged by the company’s vow to supercharge its position in the high-margin veterinary pharmaceuticals products arena. Its declining share price suggests that the market remains unconvinced right now, but I reckon the earnings outlook for the business remains extremely exciting.

Unfortunately not all investors in the UK and abroad are as clued up as they could be, so we’ve been at pains more recently to identify a number of investment strategies that could help you stave off retirement poverty.

In a recent article I selected some of the best dividend shares from the FTSE 250 that should more than offset any shortfall caused by the State Pension. Given the positive response to these picks from our audience, I’m at it again today, looking at two great pharmaceutical stocks that could help you to retire on a fortune: Hutchison China MediTech (LSE:HCM) and Animalcare (LSE: ANCR).

Tech This Out

Hutchison isn’t turning a profit right now. It isn’t expected to turn a profit by the end of the decade at least. But share investors who are in it for the long haul should give the Asia-focused medicines giant close consideration on the back of its bulging product pipeline.

On the immediate horizon, the market waits with baited breath for news on the company’s oncology treatment fruquintinib for the remainder of the year. It is expecting approval and launch of the product in China for colorectal cancer in the months ahead, and is also seeking Phase III testing results for lung cancer application soon.

Things are likely to remain exciting in 2019 and beyond. Following positive Phase II data on its savolitinib cancer battler, Hutchison has begun exploring the possibility of accelerated approval from Chinese regulators to bring the treatment to market sooner. In addition, another major drug, tumour treatment sulfatinib, is due to begin Phase III studies in China next year.

Hutchison’s global expansion strategy also offers plenty of reason to expect earnings to detonate in the years ahead. During Q2, its Hutchison MediPharma (US) division started operating in New Jersey, a move designed to bolster its R&D and regulatory activities outside of Asia and also prepare the ground for new product launches.

Animal magic

The ballooning market for veterinary medicines also makes fellow AIM stock Animalcare a hot growth prospect.

Investor appetite soured in the spring after it warned that the impact of a changing sales mix on gross margins, allied with a recent rise in competitive pressures, would see earnings fall short of expectations in 2018. This subsequent re-rating now leaves Animalcare dealing on a forward P/E ratio of 12.6 times, and this represents a brilliant time for patient investors to jump in, I believe.

Revenues at the business rose 6.4% in the six months to June, it advised in August, and its bubbly pipeline promises more impressive top-line progress. It has several product launches slated for the remainder of 2018 and for the start of next year,  including Cortacare which received approval from the Committee for Medicinal Products for Veterinary European Medicines in June.

An added reason to investing in Animalcare is that the business, unlike the vast majority of pharma players, offers quite fatty dividend yields — for 2018 and 2019 these sit at 4.2% and 4.3% respectively. There’s still a lot to cheer over at the business, and especially at current prices. It’s a great buy in my book.

However, while some growth stocks have made their investors rich, others have struggled lately. Here are the three worst growth stocks of 2018 so far. 

Rising costs

Growth star Asos (LSE: ASC) has fallen from grace this year as investors have baulked at the group’s escalating capex spending. 

Even though the company announced a 27% increase in sales for the six months ending in February, the firm is having to spend more to keep its edge over competitors. For the next two years, Asos is planning to spend £230m-£250m on logistics and distribution facilities, up from initial guidance of £200m-£220m.

Compared to current City forecasts for net profit of £81m for fiscal 2018, this figure is significant. With shares in Asos trading at 52 times forward earnings, management can’t afford to disappoint investors. 

Unfortunately, it looks as if this is what it has done. After rising 13% during the first quarter of 2018, it slumped following results. The stock is now down 13% for the year, a decline of 26% from the peak. 

To rebuild investor confidence, Asos needs to prove that it remains ahead of the competition, and the only way to show this is with profit growth. But I believe there could be further declines ahead.

Bust IPO 

Last year, Alfa Financial Software (LSE: ALFA) made a splash as the biggest IPO in London. The company has not lived up to the hype. Year-to-date the stock has cratered 70%.

Earlier this year, the company issued a profit warning announcing that a major customer had paused its implementation of Alfa’s software, following data migration issues. As well as this headwind, the group also warned that contract completions with two other companies were taking longer than expected.

As a result, City analysts believe the group will miss revenue expectations for the year by around £20m, which is a big deal. Analysts have slashed EPS expectations for the year from 11.4p to 5.5p. Even at this lower level, the stock looks expensive, trading at 26 times forward earnings. 

I like to avoid companies where the loss of just one client can make or break a year of performance and Alfa is no different. In my view, the risk here far outweighs the reward. 

Failed acquisition 

In 2017, Animalcare Group (LSE: ANCR) completed what management initially described as a transformative acquisition with Belgian veterinary business Ecuphar.

The deal has been transformative, but not in the way management or shareholders might have hoped. Integration is proving tricky. Full-year results for 2017 showed a decline in EBITDA margins from 13% to 11% as difficult trading conditions forced the enlarged enterprise to slash prices. Cash profit fell 9%.

Investors have lost trust in the highly-rated company. The shares are down 50% year-to-date and nearly 60% since the merger. The valuation has fallen from a forward P/E of 31 in September 2017 to just 11.7 today. The one good thing about the decline is the stock now looks cheap, but I would wait for further evidence that the business is back on track before buying.

Even as the pharma giant has suffered years of patent expiration problems (blockbuster asthma and COPD battler Advair, for instance), which have hammered revenues, I have remained optimistic that its world- class research and development teams would create the next generation of industry-leading drugs that would deliver titanic earnings growth many years into the future.

While exclusivity issues are set to remain a problem — GlaxoSmithKline estimates that turnover generated the US by Advair will slump 30% at constant currencies in 2018 — sales data surrounding newly-launched labels remains highly encouraging.

Sales of its shingles battler Shingrix, for example, generated sales of £110m in the US and Canada between January-March alone, and the drug has recently received the green light from regulators for GlaxoSmithKline to try and replicate this success in Europe and Japan. Meanwhile, sales of its stable of HIV drugs rose 14% at constant exchange rates in the first quarter, with new label Juluca added to GlaxoSmithKline’s formidable portfolio in just the past few months.

Clearly, GlaxoSmithKline still has a long way to go to replace the lost earnings created by massive patent losses. However, the firm’s bulging product pipeline and its illustrious development record suggests to me that the future is very bright.

Check out that yield!

While the aforementioned legacy issues may have smashed the FTSE 100 firm’s appeal as a sage pick for growth hunters, the huge amounts of cash being generated by its operations has provided some relief to income investors.

You see, thanks to its strong balance sheet GlaxoSmithKline has been able to keep the dividend locked at 80p per share for the past several years. And City analysts are forecasting that the pharma ace will keep payments within this ballpark through to the close of 2019, despite predictions of more bottom-line turbulence (a 5% profits fall in 2018 and a 5% rise next year).

As a consequence, GlaxoSmithKline rocks out with a massive 5.2% yield. This, combined with the company’s undemanding forward P/E ratio of 14.6 times, makes it a very attractive investment destination today.

A different dividend star

Another hot income prospect from the pharmaceuticals sector is Animalcare (LSE: ANCR).

This AIM-listed selection, thanks to the execution of a game-changing M&A during the past year, now boasts a massive continental footprint in the fast-growing area of medical care for companion and farm animals. Animalcare saw revenues boom 22.4% in 2017 to £83.7m and I’m confident that sales should continue growing at a stratospheric rate.

My view is shared by City brokers who subsequently expect earnings to grow 5% and 10% in 2018 and 2019, respectively, projections that also lead to predictions of further dividend growth. Thus last year’s 6.7p per share reward is anticipated to rise to 7.1p this year and to 7.2p in 2019, resulting in a jumbo 4.3% yield through to the end of next year.

A forward P/E multiple of 12.6 times also suggests Animalcare is undervalued relative to its estimated growth trajectory. I reckon the business, like GlaxoSmithKline, is a great stock to pick up today.

The AIM-quoted business, as one could probably guess, is an expert in the field of medical treatment for our furry friends. Its self-stated mission “is to renew and strengthen our product range throughout the UK and through distribution partners into other key European territories” and latest trading details revealed the terrific progress it is making in pursuing this objective.

Animalcare saw revenues leap 9.4% during 2017, to £91.9m, or 3.4% at stable exchange rates, beating its earlier expectations. And following the £134m acquisition of Ecuphar last year it now has the scale to really make a splash in the animal health market across the whole of Europe.

City analysts are expecting the company to keep its long record of earnings growth rolling with bottom line rises of 3% and 11% in 2018 and 2019 respectively, next year’s predicted result reflecting the expected revenues and margin opportunities created by 2017’s monster acquisition.

The petcare segment is becoming big business and the Ecuphar buy makes Animalcare a significant player both here in the UK and internationally. I therefore think a forward P/E ratio of 18.9 times is fair value given the pharma star’s bright growth outlook.

Yields leaping to 5%+

An added bonus is that Animalcare’s progressive dividend policy produces a chunky 2.5% yield through to the close of next year. Those on the lookout for yields that blow the competition out of the water, however, may want to give RSA Insurance Group (LSE: RSA) a closer look too.

The FTSE 100 insurer’s restructuring measures of some years back have transformed it into a profit-making machine with brilliant balance sheet strength, qualities that have seen it light a fire under dividends in recent times.

And City analysts expect shareholder payouts to keep on sprinting higher for some time yet. Supported by a predicted 16% earnings improvement in 2018 RSA is expected to raise the dividend to 29.9p per share from 19.6p last year, meaning share pickers can bathe in a gigantic 4.7% yield.

This isn’t the end of the matter, either. In 2019, dividends are expected to rise to 33.8p, helped by an anticipated 6% profits rise and a figure that yields a terrific 5.3%.

A bargain-basement forward P/E rating of 12.6 times seals RSA’s investment case, in my opinion. Indeed, this ultra low reading fails to take into account the Footsie favourite’s exceptional revenues outlook in the UK, Scandinavia and Canada, territories in which it is a major player.

And it also fails to reflect the company’s successful attempts to drive down costs (it now expects to make gross savings of £450m by 2019). I believe RSA is a brilliant bet for growth and income chasers alike.

Hidden gems

That’s all well and good if you’re a risk-averse investor unwilling to fish outside the FTSE 100 or even FTSE 250. But what about the rest of us? How are we to supposed to unearth the hidden gems that could go on to become tomorrow’s big winners without adequate coverage and commentary?

Don’t worry, that’s what we’re here for at The Motley Fool. Here, you’ll find analysis, opinion, and commentary on a wider range of UK-listed companies, no matter how big or small. Concerning the latter, it’s often these smaller companies than can generate the biggest returns, with rich pickings to be had from little-known firms flying under the radar of most retail investors.

Identification microchips

For instance, I doubt that many of you will have read much about Animalcare Group (LSE: ANCR). And yet this AIM-listed veterinary medicine provider has been supplying a wide range of animal health products for more than a quarter of a century, from identification microchips and pharmaceuticals, to pet welfare products and practice equipment.

For the 2017 financial year, the York-based group delivered a 7.9% increase in revenues to £15.87m, with underlying operating profits rising 11.8% to £3.57m, compared to £3.19m for FY2016. The Licenced Veterinary Medicines arm of the business had a particularly strong year, with a 17.2% leap in revenues to £10.8m, mainly due to export sales which soared 60.1% to £1.67m.

Reverse takeover

But by far the highlight of the year was the acquisition of European animal health business Ecuphar. The £134m reverse takeover is likely to be hugely transformational for the group, providing it with enhanced scale and capabilities to create a pan-European animal health platform from which to accelerate growth.

The deal has expanded the group’s direct sales platform to cover seven countries (compared to just one country previously), with its international reach now covering 50 export markets, as well as greatly increasing the depth and diversity of its licensed veterinary medicines product range.

AIM Transaction of the Year

It seems I’m not the only one that thinks the acquisition was a shrewd one, with Animalcare winning the ‘Transaction of the Year Award’ at the 22nd Annual AIM Awards 2017 for its deal to merge with Ecuphar. The award is given to companies that have been “transformed by a single financial or commercial transaction during the period under review and thereby creating significant shareholder value.“

As an enlarged group Animalcare has certainly transformed itself into a growing, highly cash generative, dividend-paying company with a solid pipeline of new products and multiple cross-selling opportunities, and as such a P/E rating of 18.5 doesn’t seem too demanding to me at all.