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Why I Would Buy AstraZeneca plc And TT Electronics plc But Sell Lamprell Plc

Today I am looking at the investment case for three London-listed movers.

AstraZeneca

Shares in AstraZeneca (LSE: AZN) (NYSE: AZN.US) have failed to recover from late April’s collapse, the medicines giant’s 2.8% slide today pushing it even further away from last month’s record peak of £48.63p per share. While ongoing worries over further revenues-crushing patent losses is quite rightly stoking investor nerves, I believe that for long-term investors AstraZeneca should prove a lucrative growth pick.

Indeed, AstraZeneca’s R&D operations keep on delivering — the firm expects to start Phase II testing on between 12 and 16 drugs this year, and to receive approval for up to 10 products. On top of this, I reckon that AstraZeneca’s transatlantic lab-building programme, scheduled for completion in 2018, should provide a significant boost to the company’s development profile.

So although AstraZeneca is anticipated to see earnings flatline in 2015, and slip 2% in the following year, I expect its rejuvenated lab operations to drive profits higher once again looking further ahead. And while the pharma play may not be the most jaw-dropping value pick in town — P/E multiples of 16.3 times and 16.5 times for this year and next are just above the benchmark of 15 times which represents decent bang for one’s buck — a prospective dividend of 290 US cents through to the close of 2016 produces a market-beating yield of 4.1%.

TT Electronics

Electronic components play TT Electronics (LSE: TTG) has cheered the market with a positive trading update today and was last dealing 7.3% higher. The Surrey firm advised that it has made “an encouraging start to the year despite the anticipated challenging market conditions,” with its order book remaining strong and overall trading matching expectations. As well, the business advised that its ‘Operational Improvement Plan’ was also on track, with restructuring expected to complete in the first half of 2017.

TT Electronics’ operational footprint covers a wide array of industries, including the aerospace, defence, transportation, industrial and medical sectors. And I believe this diversification should protect its long-term earnings prospects as global growth picks up. Indeed, the number crunchers expect TT Electronics to rebound from an estimated 31% earnings dip this year with a 14% advance in 2016. These figures leave TT Electronics trading on sunny P/E ratios of 14.8 times and 13.1 times for 2015 and 2016 correspondingly.

And the electronics boffins provide excellent value for dividend seekers, too. TT Electronics is expected to keep the dividend on hold around 5.5p per share this year, although a slight hike to 5.6p is chalked in for 2016. As a result the stock carries a mouth-watering 4.2% yield through to the close of next year.

Lamprell

Like TT Electronics, rig builder Lamprell (LSE: LAM) is also performing well in Tuesday business and was recently 2.6% higher. Although company veteran Peter Whitbread announced his departure from the board today, investor sentiment remains upbeat as Lamprell stacks up the contracts — indeed, Abu Dhabi’s National Drilling Company ordered a newbuild rig with the firm in late April.

Although the news has illustrated the benefits of Lamprell’s focus on the Middle East and North Africa, I believe that a backcloth of worsening supply/demand fundamentals in the oil market is likely to constrain spending by the industry’s key players still further in the coming years. This view is shared by the City, and Lamprell is consequently expected to punch a hefty 41% earnings slide in 2015. The bottom line is anticipated to stagnate in 2016.

These figures leave Lamprell changing hands on 12.8 times through to the close of next year, although I would consider a figure closer to the bargain benchmark of 10 times to be a fairer reflection of the risks facing the hardware builder.

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Royston Wild has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.