I don’t plan to rebalance my stock market portfolio into a single FTSE 100 stock. That’s because I prefer to diversify my investments across different companies and sectors, managing my risk exposure in the process.
Nonetheless, not all shares in the UK’s blue-chip benchmark are equal. I believe some Footsie companies have brighter prospects than others. Accordingly, if I had to choose a single stock to invest in from the index, it would be the Anglo-Swedish pharmaceutical giant AstraZeneca (LSE:AZN).
With a market cap of £182bn, it’s the FTSE 100’s biggest company and I already hold some of its shares. But I think this business has plenty of upside potential for further growth. Here’s why.
First, it’s worth appreciating the spectacular growth in the AstraZeneca share price. Over the past five years, the stock has climbed nearly 118%. If I’d bought back in mid-2018, my initial investment would have more than doubled in value today.
The upward trajectory has been remarkably consistent too, as the chart above shows. No doubt the company was a beneficiary from the pandemic thanks to its Covid-19 vaccine Vaxzevria, but there’s much more to the business. After all, the stock is close to an all-time high today despite the company’s guidance that it will deliver “minimal” sales of Vaxzevria this year.
A premium pipeline
AstraZeneca’s drugs portfolio is impressive. Spanning a range of diseases, some of its star medicines include lung cancer drug Tagrisso, diabetes drug Farxiga, and leukaemia drug Calquence.
The firm currently has 178 projects in its pipeline, including 14 new molecular entities in its late-stage pipeline. A considerable number of its drugs are currently undergoing phase III clinical trials across its key therapy areas. The company expects to launch 15 new medicines by the end of the decade, some of which could produce more than $1bn in annual revenue.
What’s more, AstraZeneca’s financial results continue to impress. In the first quarter it delivered $10.6bn in revenue. That was flat on a constant currency basis, but once the falling Covid-19 medicine sales are removed from the picture, it represents 15% growth.
This is evidence of depth in the company’s strength across its various divisions. It has indicated full-year revenue will grow by a low-to-mid-single-digit figure.
However, all stocks face risks, and AstraZeneca is no exception. At present, it has a price-to-earnings ratio of 46.5, which is a considerably higher multiple than the FTSE 100 average of just below 10. The stock certainly isn’t cheap. Any disappointing results from clinical trials could deal a blow to the share price.
In addition, the firm’s balance sheet isn’t flawless either. AstraZeneca’s debt-to-equity ratio is currently 88%. That’s a little high for my liking and I’d like to see the company make some progress in reducing its net debt position.
Why I own AstraZeneca shares
Although there’s a risk the growth opportunities from its pipeline have been priced in, I still think AstraZeneca is a great long-term hold for me. It’s a highly innovative company and CEO Pascal Soriot has done a stellar job over the past decade.
While I wouldn’t invest everything in a single FTSE 100 stock, if it came to it, I’d choose AstraZeneca.