While the decision by US lawmakers to close the so-called ‘tax inversion’ loophole makes it less likely for a US firm to bid for AstraZeneca (LSE: AZN) (NYSE: AZN.US), there is still the potential for M&A activity. That’s because AstraZeneca is building a hugely impressive pipeline that could deliver stunning long-term top and bottom line growth for the company.
For example, it has acquired Bristol-Myers Squibb’s share of the diabetes alliance that could be a key growth area for drugs and treatments over the long run. And, with a number of its peers struggling to post meaningful sales growth, a bid for AstraZeneca is very much a distinct possibility for 2015.
Although AstraZeneca’s earnings are set to slip by a further 4% next year, investors seem willing to look beyond the shorter term and look ahead to a period of stronger growth. With sector peer Shire trading on a price to earnings (P/E) ratio of around 19.8, there is still scope for AstraZeneca to see its rating adjusted upwards from the current 16.8 during the course of the next year.
With Burberry (LSE: BRBY) being heavily focused on emerging markets for its sales, the economic outlook for China really matters. And, with the world’s second biggest economy experiencing a period of slower than anticipated growth, it is little wonder that Burberry’s bottom line is forecast to fall by 1% in the current year.
However, with China making what is rumoured to be the first in a series of interest rate cuts, 2015 is expected to be a much better year for consumer stocks such as Burberry. In fact, it is expected to post earnings growth of around 9% next year and, with shares in Burberry trading on a P/E ratio of 20.7, they seem to offer good value for money when the strength of the brand and its longer-term potential are taken into account. As a result, Burberry’s shares could perform well next year.
Clearly, 2014 has been a highly challenging year for Tesco (LSE: TSCO), with the misstatement of forecasts and continued challenging trading conditions causing its shares to fall by 50% since the turn of the year. Furthermore, there could be additional pain to come for investors in the short run, with new CEO Dave Lewis yet to state his strategy for rationalising the business and turning it around.
However, the market seems to be expecting trading conditions to worsen indefinitely for Tesco, which is unlikely to happen. Certainly, sales will not increase rapidly in a short space of time but, with wage rises being ahead of inflation, the focus on price among shoppers may begin to recede during the course of the next year. With investor sentiment being so negative in regard to Tesco’s future prospects, any positive surprise could be well rewarded via a higher share price. As a result, Tesco could prove to be a stock worth holding during the next year.
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Peter Stephens owns shares of AstraZeneca and Tesco. The Motley Fool UK has recommended Burberry. The Motley Fool UK owns shares of Tesco. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.