Should You Buy AstraZeneca plc Instead Of Hikma Pharmaceuticals Plc, BTG plc And GW Pharmaceuticals plc?

2015 has been a rather mixed year thus far for the pharmaceutical sector. That’s because, while the likes of AstraZeneca (LSE: AZN) (NYSE: AZN.US) and BTG (LSE: BTG) have seen their share prices fall by 1.5% and 1% respectively, superb gains have been on offer elsewhere in the sector. For example, Hikma (LSE: HIK) and GW (LSE: GW) have seen their share prices soar by 27% and 26% since the turn of the year.

Looking ahead, though, which of the four is the best buy for longer-term investors?


Clearly, pharmaceutical stocks tend to trade at a premium to the wider index, so comparing them directly to the FTSE 100, for example, is unlikely to lead to a conclusion that they offer good value for money. Of course, they tend to trade on premium valuations because of their appealing mix of defensive characteristics and strong growth potential, so even though AstraZeneca has a price to earnings (P/E) ratio of 16.3 (which is higher than the FTSE 100’s P/E ratio of around 16), it still seems to offer good relative value for money.

That’s because Hikma, BTG and GW have P/E ratios of 26.2, 37.7 and, in the case, of GW, its status as a loss-making company means it does not have a positive P/E ratio. As such, AstraZeneca is certainly the cheapest of the four stocks but, as mentioned, future growth potential can be significant in the pharmaceutical sector.

Growth Prospects

There is a clear split when it comes to the growth forecasts of the four companies over the next couple of years. That’s because, while AstraZeneca’s bottom line is expected to decline in the low-single digits before resuming growth in 2017, and GW’s losses are due to widen in 2015 and 2016, BTG and Hikma have relatively bright futures.

For example, Hikma’s bottom line is forecast to grow by 6% this year and by 15% next year, which puts it on a relatively appealing price to earnings growth (PEG) ratio of 1.6. However, BTG seems to have much greater appeal despite its higher P/E ratio, with it set to post earnings growth of 27% and 53% over the next two years, which puts it on a PEG ratio of just 0.5.

Looking Ahead

Although AstraZeneca is going through a challenging period, with its loss of patents continuing to impact on its bottom line, it still offers excellent value for money relative to its sector peers. Certainly, BTG has considerable appeal, with its stunning prospects meaning that it appears to offer growth at a very reasonable price and could be worth buying at the present time.

Furthermore, Hikma also has great potential to continue its run thus far in 2015, although GW’s forecast increase in losses could cause its share price to come under pressure in the medium term, with investors having other strong options within the pharmaceuticals space available to them.

However, while there is opportunity elsewhere, AstraZeneca still seems to be the pick of the four companies due to its long-term potential and appealing valuation. And, for long term, patient investors, it could deliver stunning share price growth as its acquisition spree is all set to revitalise its top and bottom lines.

Of course, finding the best stocks in any sector is never an easy task – especially when work and other commitments take up much of your time.

That's why the analysts at The Motley Fool have written a free and without obligation guide called 10 Steps To Making A Million In The Market.

It's a simple and straightforward guide that could help you to find the best stocks at the lowest prices and, as a result, your portfolio returns could gain a major boost.

Click here to get your copy of the guide – it's completely free and comes without any obligation.

Peter Stephens owns shares of AstraZeneca. The Motley Fool UK has recommended BTG. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.