When investing, the golden rule is to diversify. The FTSE 100 is full of stocks from different industries and sectors, each with their own unique value proposition. By mixing and matching a variety of stocks, I can protect myself from unexpected slumps in certain sectors.
However, for the sake of experimentation, I’m considering which stock I would pick if I were forced to choose only one. This exercise forces me to carefully evaluate the true potential of a company and its long-term growth prospects. I can’t just dump it on a whim — this would be a lifetime commitment!
So with that said, which stock would I pick?
Healthcare isn’t going anywhere
Out of all the stocks on the London Stock Exchange, I would have to choose AstraZeneca (LSE:AZN). The pharma giant made its name during the pandemic as one of the most rapid and successful developers of a Covid vaccine. With a £164bn market cap, it’s the second largest constituent on the FTSE 100 after Shell.
AstraZeneca has been on my radar for as long as I can remember. But recent performance has made me hesitant to buy. After the lingering effects of the pandemic wore off, the share price began to falter. It’s now down 10% in the past year to £105 from a high of £123 in April 2023. But a correction is expected following five years of solid growth that saw it add 76% to the share price.
Strength and resilience
The long-term value proposition of AstraZeneca is resilience during tough times. It has the key characteristic of a defensive stock — a service that is in high demand even during economic uncertainty.
Many pharmaceutical companies researched Covid but AstraZeneca stood out as a leader in advancing a vaccine. It’s a company with the resources and experience to excel when faced with a high-pressure situation. Covid is unlikely to be the last pandemic, and AstraZeneca is now well-positioned as a go-to option for governments seeking help.
Besides vaccine development, AstraZeneca is working on several breakthrough treatments. Tumour drugs Daiichi and Enhertu were recently approved in the US. People are living longer, so demand for such treatments is expected to increase. With a broad range of treatments, the company is less at risk of losses from a single product failure.
Risks and competition
Yet the pharmaceutical industry is very competitive and while AstraZeneca is leading in the UK, it could easily be outmatched. It faces stiff competition from the likes of AbbVie, Novartis and Pfizer. A recent plan to increase the CEO’s pay was branded necessary to remain competitive. But it was opposed by two influential shareholders, with others urged to follow suit.
At an eye-watering £105 per share, the price-to-earnings (P/E) ratio of 34.9 is considerably higher than the industry average of 24.9. This is also reflected in a high price-to-book (P/B) ratio of 5.3, above the industry average of 2.4 and a metric ideally kept below 1.
The high share price would understandably make AstraZeneca less attractive to many investors. However, I still feel it would be the best option if I had to choose and hold just one stock forever.
