FTSE 100 incumbent Hikma Pharmaceuticals (LSE:HIK) is a stock I would buy for my portfolio and hold for a long time. Here’s why.
FTSE 100 pharma giant
Pharmaceutical companies haven’t always had the best reputation. This has often resulted in negative investor sentiment. The rising costs of life-saving and essential medicines has contributed to this negativity. I believe Hikma is different from a traditional pharma firm. It manufactures generic, branded, and injectable pharmaceuticals and markets them at an affordable price.
As I write, shares in Hikma are trading for 2,265p. At this time last year, shares were trading for 10% higher at 2,522p. This is not a concern for me. In fact, I see it as a buying opportunity to pick up shares cheaper than usual. Looking back at the Hikma share price over a longer period, it has risen steadily over the past five years.
For and against
FOR: Hikma’s recent and historic performance is positive. I know past performance is not a guarantee of the future but I use it as a gauge nevertheless. I can see revenue and gross profit have increased year on year for the past four years. Recently, a trading update in November revealed guidance for full-year results is on track for another year of growth.
AGAINST: Hikma is not the only pharma firm in its space where it attempts to manufacture cheaper alternatives to expensive drugs. This competition could significantly affect market share and performance. This would affect shareholder returns to existing investors and potential investors such as myself.
FOR: The current pandemic, as well as ageing population of the world, could benefit Hikma’s performance. Since the pandemic began, the likelihood of seeing a doctor or getting a hospital bed, especially in the UK, has declined massively. This has led many people to turn to over-the-counter options and with economic pressures weighing on people’s pockets, cheaper options are attractive. No matter the circumstances, medicines will always be required.
AGAINST: The macroeconomic environment and current pressures could affect performance for Hikma and investor returns. Rising inflation and costs could eat away at margins. In addition to this, the labour market and shortage of workers could also affect operations and in turn performance. These issues are affecting other FTSE 100 picks for my portfolio too.
My verdict
I would add Hikma shares to my portfolio at current levels and hold them for the long term. I believe Hikma has a good market share in its sector to continue to grow in terms of performance and provide me good returns as an investor. It also continues to acquire businesses to enhance its offering.
I must keep an eye on risks that could derail progress but most of these are shorter-term issues, such as the macroeconomic issues I noted. At current levels I believe Hikma is a cheap FTSE 100 stock with a price-to-earnings ratio of 14.
