Companies can stand out in the equity market by sheer good performance, and sometimes fortune can simply turn in their favour. When the stars well and truly align, both performance and fortune present themselves. Like in the case of FTSE 100 pharmaceutical giants AstraZeneca (LSE: AZN) and GlaxoSmithKline (LSE: GSK).
The big political announcement of the week resulted in a very Brexit-friendly Prime Minister in Boris Johnson, significantly increasing the possibility of a no-deal divorce from the European Union. The resulting uncertainty might be bad for discretionary sectors, but I believe it’s more than likely to drive investors towards defensives, like pharmaceuticals.
The latest results for both companies, also announced during the week, are on point too. Prices of both shares have seen an impressive rise in the past month already and, going by the latest developments, to me it seems that the best is yet to come.
Increasingly optimistic
First, consider AstraZeneca. The results for the first half of 2019 are positive for both sales and profits, to the extent that the company has actually upgraded the sales guidance for the year. I like that the company has reported strong growth in emerging markets, the US and Japan at a time when geographical diversification is the name of the game (in the face of Brexit). The latest numbers only convince me more of the company’s merit.
It was already my top share for May, because of its good results in the first quarter. From then to now the price has risen further by 22%, despite the high price-to-earnings (P/E) ratio. And if the past is any indication of the future, the latest results will only push the price further up over time, even if there are a few corrections along the way.
Positive developments
GSK’s results are also neat, with increases in both sales and profits. I have been quite bullish on the company for a while for multiple reasons, which continue to hold. Not only is it well on its way to becoming the market leader in consumer healthcare, with the merger with Pfizer, its pharmaceuticals business is looking promising too. It recently announced that its ovarian cancer drug has proven to be effective, which is being seen by analysts as a potential boost for the company.
Strong long-term buys
Even though GSK is priced more reasonably, with a P/E at 21x compared to AstraZeneca’s at 45x, I think both shares merit a place in an investment basket and not just the former. The reason being that AstraZeneca’s meteoric price rise is untouched by its relative expense compared to GSK, because of the positive developments it has seen. I am inclined to see it as a higher price for a share with super positive prospects, even though going purely by the P/E metric, GSK seems the better bet.
