Should You Buy AstraZeneca plc Or Vodafone Group plc On Takeover Talk?

AstraZeneca plc (LON:AZN) and Vodafone Group plc (LON: VOD) could be lucrative investments, but make sure you ignore the rumours.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

There’s a nice giddy feeling whenever one of your holdings makes a double digit leap in a day. Shares in AstraZeneca (LSE: AZN), the UK’s second biggest pharmaceutical company, hiked 14% on bid speculation this week.

But Pascal Soriot, Astra’s chief executive, doesn’t appear keen on the advances of Pfizer, the US giant which closed its UK R&D centre in Kent two years ago. Commenting generally on takeovers, Soriot mused: “Sometimes they can work, but often they are very disruptive“.

AZNYou’re unlikely to secure your financial future on short term price fluctuations, however. Indeed, initial discussions over a £60bn takeover ended, reports suggest, many months ago. What’s more the talks were merely tentative, and while analysts suggest Pfizer may advance more aggressively, we’re dealing in speculation here.

Pfizer has since sought to renew discussions, and has until 26 May to make a firm offer in accordance with UK regulations, but that doesn’t mean Soriot will play ball. If you pile into AstraZeneca purely on the weekend’s press reports, then it’s akin to spinning a roulette wheel.

We saw the same thing with Vodafone (LSE: VOD) earlier this year, and once predator AT&T put an end to months of conjecture by ruling out a potential bid, Vodafone shares fell 6%. As an investor what should concern you is not what AstraZeneca’s shares will be doing this time next week, or what Vodafone’s share price will be in June, but things like “Is this a solid business that I feel comfortable with for the long haul?“, “What kind of industry am I investing in?” and “How much profit does the sector produce?” 

Let’s take a closer look at AstraZeneca and Vodafone:

AstraZeneca

A basic rule of thumb is that you should only invest in companies you understand. So, do you know the significance of Phase I, II and III trials? If not, then it’s worth a quick refresher.

All medicines, naturally, need both to be safe and proven to work. Phase I trials are done with small sample groups, of maybe only a few patients, looking at issues such as safe dosage ranges and side effects. After this the medicine will undergo Phase II trials with larger groups of patients, looking at how well the treatment works and what specific things the drug is effective against (eg, if it’s an anti-cancer agent, which cancers does it work best for).

If Phase II goes well it will be followed by Phase II trials, in order to determine the drug’s effectiveness against existing treatments. Only after a successful Phase III will the drug be granted a marketing licence.

AstraZeneca has a number of promising cancer treatments nearing the market, including olaparib, which has been granted Priority Review by the US FDA to speed up its development and availability. AstraZeneca’s drugs pipeline is of utmost priority to curb the effects of increasing competition from generic drugmakers. In AstraZeneca’s recent results a total of four new treatments made it to Phase III testing.

Pascal Soriot’s strategy has been to invest in the drugs pipeline, and it should pay dividends.

Vodafone

vodafoneThe irony is that, for all the talk of Vodafone being easy prey for AT&T, with £20bn to spend from the Verizon sale Vodafone is eyeing up targets of its own. Vodafone has already spent £6bn on the Spanish telecoms operator Ono, demonstrating a commitment to turning around its struggling European business. Similarly, heavy investment in new network technology should also help Vodafone attract new customers.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Mark does not own shares in any company mentioned.

More on Investing Articles

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Just released: Share Advisor’s latest ‘Hold’ recommendation [PREMIUM PICKS]

In our Share Advisor newsletter service, we provide buy, sell, and hold guidance for our universe of recommendations.

Read more »