Uncertain times call for safe investments when it comes to stock market investing. While there can be no certainties when it comes to making a decision on where to invest, I prefer to focus my money towards well-established, and historically well-managed, companies that are not dependent on cyclical or fashionable industries.
The UK’s primary stock index, the FTSE 100, contains some of the biggest and most reputable companies in the country, which have been around for decades and even longer.
One of these stocks, which has traditionally shown outperformance in the market, is pharmaceutical giant AstraZeneca (LSE: AZN).
The company has seen its share price rise more than 30% in the last six months, bringing its total market capitalisation to over £95bn, making it one of the most valuable companies listed in the UK. Currently trading close to its all-time high of 7,645p, some would question how much growth potential remains for AstraZeneca.
Sales growth
A strong set of results in its most recent quarterly earnings report tempted even more investors to get in on the act, but what was more noteworthy for me was the upgrading of its sales guidance.
The big pharma company said its product sales growth was now expected to hit the “low to mid-teens percentage” for the full year, ahead of what had been previously forecast.
Some may see those positive results as already priced in, but looking at AstraZeneca’s growth in emerging markets, I still see plenty of upside for the stock.
New medicines growth for the quarter in emerging markets was 85% (90% at constant exchange rates) and with such rapid growth potential available in those areas there could still be room for the share price to push higher.
When it comes to dividends, AstraZeneca wouldn’t necessarily cut it as an income stock, with CEO Pascal Soriot and the board opting to reinvest profits and dividends into product development and its future drugs pipeline. The shares currently yield less than 3%, less than the FTSE 100 average of 4.5%.
Premium prices
The shares are certainly not cheap, trading off a price-to-earnings ratio of 26 times forecast earnings. Value investors would perhaps be best placed to avoid the stock. GlaxoSmithKline potentially offers more value with a P/E ratio of around 14 times, but investors are clearly placing a premium on Astra shares.
However, a major part of the upturn in Astra’s fortunes is the fact that big pharma is seen very much as a safe haven in investment circles. Investors will often flock to such defensive shares during times of economic uncertainty.
That environment looks set to linger for a number of years with the likes of Brexit and the US-China trade standoff still weighing on the market. With this in mind as well as the growth potential for AstraZeneca in emerging markets, I’d certainly hold the stock and even buy more at its current price.
There’s always room in a good investor’s portfolio for a solid pharma stock and Astra certainly ticks the majority of the boxes at this stage.
