The FTSE 100 isn’t far off all-time highs. And while some investors may love that momentum, others will be a little worried about investing in a potentially stretched market.
The reality is that while some parts of the stock market are richly valued, especially US tech, it’s not universally the case.
In fact, I believe there are still great value plays to be had. One is AstraZeneca (LSE:AZN) — the largest company on the FTSE 100.
What makes the stock so great?
To start with, AstraZeneca’s forward price-to-earnings-to-growth (PEG) ratio of 1.2 is just 3% higher than its five-year average forward PEG.
What does that tell us?
Well, investors are currently quite used to paying more for a stock on a valuation basis than they did a couple of years ago.
This tells us that AstraZeneca is still pretty much the same price on a growth-adjusted metric.
But it’s not just on self-comparisons where AstraZeneca excels.
It’s a behemoth of the pharma and biotech world, and that means we should compare it against its global peers and not just those in the UK.
Sticking with the forward PEG ratio, we can see that the company is trading at a 35% discount to its global peers.
This is great sign of relative value. And it’s worth recognising that AstraZeneca supports this with a strong balance sheet and near-2% dividend yield.
While data can occasionally be misleading, the above figures tell me that this is a stock worth considering.
Business as usual
There have been several things weighing on the AstraZeneca share price over the past 12 months. A China scandal, a traditionally vaccine-wary US Secretary of Health and new tariff policy.
However, most of those concerns appear to be in the past. Earlier in October, AstraZeneca struck a landmark agreement with the US government to offer its drugs to Medicaid at “most-favoured-nation” (MFN) pricing. This means matching the lowest price it charges in other developed countries.
In turn, this means it’s really about business as usual for AstraZeneca. And that means focusing on a very large pipeline of treatments, drugs, and vaccines.
While it can take years to really dive into a company’s pipeline and assess how much value a drug or treatment may bring to patients and net sales, it’s also worth noting that many pipeline products never make it to market.
This, itself, is a risk that all investors must take when investing in pharma companies like AstraZeneca. It may spend billions on R&D but never see a penny for it.
However, the size of the portfolio does mitigate some of that risk. As does the company’s focus on advancing treatments in oncology and rare diseases — these are critical areas of medical development.
Personally, I think investors should be considering this FTSE 100 stock. It still looks cheap and it’s in an industry that isn’t going anywhere.
