The AstraZeneca (LSE:AZN) share price is down 10% in a year. That’s clearly a disappointment for investors, and it marks a deviation from the positive trajectory of the past decade.
In that period, the stock’s moved from a little over £40 a share to nearly £110 today, so it’s been one of the UK’s most appealing growth stories.
But the company’s relative underperformance against UK stocks over 12 months can be traced to several things. One of these is a series of legal issues in China relating to claims of illegal drug importation.
Another factor is the US administration. The selection of Robert F Kennedy Jr to lead the health department saw pharma stocks pull back. After all, their biggest market was now under the administration of an alleged vaccine skeptic.
Further appointments have also been a cause for concern within the market. Controversial British doctor Aseem Malhotra was appointed as Chief Medical Adviser of the Make America Healthy Again campaign group in May, making him one of the US’s most influential medical advisers.
Tariffs and the odd medical trial disappointment have also contributed to this underperformance.
What could change?
So what’s in store? Well, there are several positives that may not have been priced into the stock. Firstly, Kennedy has taken a notably softer position on vaccines since his appointment, and that bodes well for one of the world’s largest vaccines and immune therapies developer.
AstraZeneca also seems well-positioned to mitigate against tariff impacts. The company already had a sizeable manufacturing presence in US but recently announced a further $50bn US investment plan.
However, I believe the stock market’s due a correction or rotation. The US market’s trading way above its 200-day average and the recent surge in markets has been driven largely by technology firms — where the global average price-to-earnings-to-growth (PEG) ratio has reached 1.81.
In short, I wouldn’t be surprised to see investors rotate their investments out of technology and into lesser valued areas of the market. Pharma, with its perennial draw that we will always need medicines, may be a net beneficiary.
And at 16 times forward earnings, AstraZeneca’s valuation is undemanding. The company’s net debt is manageable, the 2.2% dividend yield’s stronger than the sector average, and the forward PEG ratio represents a 25% discount to the mean.
It’s almost among the most positively-rated stocks on the FTSE 100. The are currently 15 Buy ratings, two Outperform ratings, and one Hold rating. The average share price target suggests the stock could be trading 26% higher.
Of course, the stock isn’t risk-free. The global trade environment isn’t ideal for AstraZeneca and neither is the US health secretary! However, if sentiment improves, I’d expect to the see the stock move towards that price target towards the end of the year, maybe hitting £125.
It’s a stock I may top up. It’s certainly worth considering for long-term investors.
