Retirement saving: I think AstraZeneca could help you to accumulate £1 million

AstraZeneca plc (LON: AZN) may offer a mix of income and growth potential which could boost your retirement prospects in my view.

| 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.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

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.

The performance of AstraZeneca (LSE: AZN) has started to improve significantly in recent quarters. The FTSE 100 pharma stock has returned to growth after what has been a long and arduous journey. It has suffered from the impact of patent losses, with its financial performance having disappointed significantly in recent years.

Now, though, growth is expected to continue over the long run. As such, now could be a time to buy it at a moment when a number of FTSE 100 shares, including one that reported on Thursday, may be overvalued after the index’s strong start to 2019.

High valuation

The stock in question is support services business Rentokil (LSE: RTO). Its full-year results showed continued improvements in revenue and profitability. Sales increased by 13.2% on an ongoing basis, while ongoing operating profit increased by 13.3% at constant currency. Its strategy of focusing to a greater extent on innovation and digital technology appears to be bearing fruit, while acquisitions have also helped to improve the financial performance of the business.

Looking ahead, the stock is forecast to post a rise in net profit of 10% in the current year. While this would represent a strong performance, its share price appears to fully factor this in. Having risen by 19% in the last year, it trades on a price-to-earnings (P/E) ratio of around 25, which suggests that it lacks a margin of safety.

Therefore, while Rentokil is performing well from a business perspective, its investment appeal appears to be limited. There may be better alternatives in the FTSE 100 which offer growth at a more reasonable price.

Improving prospects

As mentioned, AstraZeneca has returned to growth in recent quarters. In the current year, this trend is due to continue. The company is forecast to record a rise in net profit of around 13%, with it on course to deliver further growth beyond 2019. Further investment in its pipeline is expected to strengthen its competitive position, as well as provide a growth catalyst for its profit and dividends over the medium term.

Despite this, the stock continues to offer good value for money. It trades on a price-to-earnings (P/E) ratio of 20, which could represent value for money given that it has the capacity to provide double-digit earnings growth over the long run. Alongside this, its defensive profile and the long-term tailwind which an ageing population could provide to the wider healthcare industry mean that it is well-placed to generate improving levels of total returns in the coming years.

As such, buying AstraZeneca now could prove to be a shrewd move. It may have been a poor performer from a business perspective in previous years, but a revised strategy is now expected to come good. With a dividend yield of around 3.5% from a shareholder payout that is due to be covered 1.4 times by profit this year, it could prove to be a worthwhile retirement stock.

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 recommended AstraZeneca. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »