Why Vectura Group PLC Could Be The Perfect Partner For AstraZeneca plc In Your Portfolio

These 2 pharmaceutical companies look set to soar: Vectura Group PLC (LON: VEC) and AstraZeneca plc (LON: AZN)

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

One of the most important aspects of investing is seeking out companies with clear catalysts for share price growth. Certainly, buying a slice of a stock that has an excellent track record and which is expected to continue to do so can produce decent returns, however the market is often looking for a reason to increase its rating on a stock and push its valuation higher.

A prime example of a positive catalyst is moving from being a loss-making company to a profitable entity. This can have a very strong impact on investor sentiment in a stock, since it can help to justify not only the valuation placed on a business with potential, but also confirm that it is a viable entity that can offer sustainable returns over the long run.

One such company is pharmaceutical stock, Vectura (LSE: VEC). It focuses on the development of drugs to treat airways diseases and, while it has been loss-making for the last five years on a pretax basis, it is forecast to deliver a black bottom line in each of the next two years. This is extremely encouraging for the business and, furthermore, Vectura is expected to more than double its earnings next year.

Clearly, some of this improved sentiment has already been priced in, with Vectura’s share price rising by 40% since the turn of the year. However, there appears to be scope for further significant share price rises, with Vectura trading on a price to earnings growth (PEG) ratio of just 0.3, which indicates growth is on offer at a very reasonable price.

Of course, Vectura’s larger sector peer, AstraZeneca (LSE: AZN) (NYSE: AZN.US), remains a profitable business and, despite experiencing a patent cliff, has remained so throughout the last few years. However, it could see its share price climb moving forward, with a positive catalyst being bottom line growth that is expected to occur from 2017 onwards.

Certainly, AstraZeneca is due to see its earnings rise this year, but this is set to be followed by a disappointing 2016. However, from 2017 onwards the company is targeting a sustained period of growth that should help to push its price to earnings (P/E) ratio upwards from its presently appealing level of 15.1.

As such, a combination of Vectura and AstraZeneca could be a worthy addition to Foolish portfolios. Not only do they have clear catalysts that could improve investor sentiment over the medium to long term, they both offer excellent value for money at the present time. And, with AstraZeneca having excellent cash flow and a very sound balance sheet, as well as a track record of profitability, it could provide a degree of stability and reliability should Vectura’s guidance suffer from a downgrade in the short to medium term.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Peter Stephens owns shares of AstraZeneca. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Smiling white woman holding iPhone with Airpods in ear
Investing Articles

A brilliantly reliable FTSE 100 share I plan to never sell!

This FTSE-quoted share has raised dividends for more than 30 years on the spin! Here's why I plan to hold…

Read more »

Asian man looking concerned while studying paperwork at his desk in an office
Investing Articles

This 7.7% yielding FTSE 250 stock is up 24% in a year! Have I missed the boat?

When a stock surges, sometimes it can be too late to buy shares and capitalise. Is that the case with…

Read more »

Investing Articles

£13,200 invested in this defensive stock bags me £1K of passive income!

Building a passive income stream is possible and this Fool breaks down one investment in a single stock that could…

Read more »

Investing Articles

I think the Rolls-Royce dividend is coming back – but when?

The Rolls-Royce dividend disappeared in 2020 and has not come back. But with the company performance improving, might it reappear?

Read more »

British Pennies on a Pound Note
Investing Articles

Should I snap up this penny share in March?

Our writer is considering penny shares to buy for his portfolio next month. Does this mining company merit a place…

Read more »

Silhouette of a bull standing on top of a landscape with the sun setting behind it
Investing Articles

Stock market bubble – or start of a bull run?

Christopher Ruane considers whether the surging NVIDIA share price could be symptomatic of a wider stock market bubble forming.

Read more »

Investing Articles

Buying 8,254 Aviva shares in an empty ISA would give me a £1,370 income in year one

Harvey Jones is tempted to add Aviva shares to his Stocks and Shares ISA this year. Today’s 7.37% yield isn't…

Read more »

Investing Articles

Is the tide turning for bank shares?

Bank shares are trading on stubbornly cheap-looking valuations yet business performance in the sector is broadly robust. Should our writer…

Read more »