If, like me, you think that the stock market is looking rather high at the moment and could be due a fall, AstraZeneca (LSE: AZN) (NYSE: AZN.US) could be a great company to add to your portfolio.
The reason is that it has a relatively low beta. Indeed, AstraZeneca’s beta is just 0.8, which means that for every 10% fall in the FTSE 100, AstraZeneca should fall 8% (in theory). This would mean that your potential losses from a ‘correction’, ‘bear market or ‘fall’ (or whatever else you’d like to call a setback in the stock market) could be lessened by investing in AstraZeneca.
Of course, the reverse is also true. For every 10% rise in the stock market, AstraZeneca should only go up by 8% (in theory). However, this reduced overall volatility may be rewarded over the long run via higher demand for shares, meaning AstraZeneca could demand a more generous long term valuation as a result. This would be positive for your retirement plans.
In addition, the vast majority of AstraZeneca’s products are patent protected. This provides the company with a significant amount of protection with regards to its revenue visibility. In other words, AstraZeneca is more likely to meet revenue guidance because demand for its drugs is likely to remain and, since it is currently the only producer of the drugs, its revenue should be relatively easy to predict over the short to medium term.
In times of panic and fear, such stability and visibility are generally sought by investors, making the likes of AstraZeneca popular in downturns. Should the stock market fall, your portfolio may be boosted by the inclusion of AstraZeneca.
Furthermore, AstraZeneca could help retirement come that little bit sooner because it trades on a relatively high free cash flow yield, which provides evidence that shares are good value at current prices. A free cash flow yield of 8.9% is extremely high for a large-cap stock like AstraZeneca and it would be of no great surprise for this to fall in future years, with the share price potentially moving in the opposite direction.
Of course, an upward movement would be great news for investors in the stock and could mean their retirement days come sooner than expected.
