The recent FTSE 100 dip has knocked what I think could be the best UK share of the lot, pharmaceutical giant AstraZeneca (LSE: AZN)? Is this my chance to buy it at a rare discount?
As a rule, I fight shy of super soaraway stocks like this one. Sod’s law suggests they’ll crash as soon as I clamber on board. So I’ve shunned AstraZeneca for years, only to watch its share price grow and grow.
There’s a lot of controversy over CEO salaries, but Astra’s Pascal Soriot has more than justified his by doing a brilliant job since joining in October 2012.
At the start of his tenure, the AstraZeneca share price stood at 2,877p. It peaked at 13,274p a few days before the recent bout of volatility. That’s a rise of 360%. All dividends are on top.
Can it keep climbing like this?
AstraZeneca is comfortably the UK’s biggest company, with a market cap of around £195bn. Oil giant Shell is a distant second at just £157bn. I just wish more LSE-listed businesses could scale up like this one.
The momentum has largely continued with the shares up 16.41% in the last 12 months, although they’re down 5.5% over the week. This doesn’t exactly make them cheap though. AstraZeneca still trades at a whopping 43.03 times earnings. That’s way above the FTSE 100 average of around 15 times.
Can I justify buying at that price? AstraZeneca continues to bomb along, with first-half revenue up 18% to $25.6bn. It also upgraded full-year 2024 guidance, forecasting mid-teens percentage growth in total revenue and core earnings per share.
All the hard work Soriot has put into building the company’s drugs pipeline is paying off with interest. And with the world getting older and sicker, that’s likely to continue. AstraZeneca also enjoys healthy 82% margins on core product sales.
It’s a top FTSE 100 income growth stock
There will always be risks to investing in pharmaceutical stocks. Getting drugs to market is a tortuous process, with potential failure at every stage.
Successful blockbuster treatments eventually come off patent, hitting revenues. Plus there’s the constant risk of litigation, particularly in the US, which can trigger legal claims for hundreds of millions of dollars. That can hammer share prices. As I’ve discovered through my holding in FTSE 100 rival GSK.
AstraZeneca’s dividend yield is relatively low at 1.53%, but that’s mostly down to the rocketing share price. Dividend per share growth has been a little bumpy, but the general direction is upwards, as this table shows.
Chart by TradingView
This is clearly a brilliant company. My problem is that wiser investors than me discovered this yonks ago, and have reaped the rewards.
Despite the recent dip, I won’t be buying. My GSK shares are trading at just 10.57 times earnings while yielding 3.54%. I’ll sit tight, cross my fingers and hope they catch up with AstraZeneca.
