Ignore Short-Term Growth Troubles And Buy AstraZeneca plc, Halfords Group plc & Ultra Electronics Holdings plc!

Today I am looking at three growth laggards that should deliver brilliant returns for patient stock selectors.


Thanks to the enduring problem of patent expirations, the bottom-line at AstraZeneca (LSE: AZN) is not expected to enjoy a sudden upsurge any time soon. With blockbusting labels like Crestor and Nexium falling prey to rising competition from generic substitutes, the City expects revenues to fall again in 2015 and 2016 respectively, pushing earnings fractionally lower this year and by 4% in the following period.

On top of this, AstraZeneca is also having to splash out vast sums to resuscitate its product pipeline and offset these troubles — total R&D spend during January-June rose by almost a quarter, to $2.64bn. Still, I believe that long-term investors should be encouraged by the progress the Cambridge firm is making to deliver the next generation of sales drivers.

AstraZeneca currently has 15 new molecular entities (or NMEs) under regulatory review or at the ‘pivotal study’ stage, with several in the critical growth areas of Respiratory and Oncology. And the business expects 8-10 NMEs and product extensions to receive regulatory approval this year and next. With the pharma play also pulling up trees in emerging markets, and embarking on a huge lab-building programme across the US and Europe, I believe a P/E ratio of 15.9 times for 2015 represents a great point to get in on AstraZeneca’s excellent long-term growth prospects.

Halfords Group

Market appetite for bike and car services giant Halfords (LSE: HFD) has fallen off a cliff during the past couple of months. The business is now dealing at a 21% discount to levels seen at the start of August, a combination of heavy profit-booking after recent heady gains and a ghoulish trading statement keeping potential buyers away.

Halfords announced that underlying cycle sales slumped 11% in the eight weeks to the close of August, a result that pushed total like-for-like sales 1.3% lower. However, this revenues blip should be considered in the wider context of stunning bike sales in the past couple of years, while the retailer’s position as the premier destination for automotive parts and services was once again highlighted — underlying revenues at its Car Maintenance and Car Enhancement divisions advanced 7.3% and 4.7% respectively in the period.

The City expects Halfords to record a 1% earnings decline in the 12 months to March 2016, resulting in a very decent P/E multiple of 13.5 times. But thanks to the huge investment being made in its brands, not to mention the impact of store refurbishments and improvements to its online presence, the retailer is expected to enjoy a 7% bottom-line bump in 2017, pushing the ratio to an even-better 12.6 times.

Ultra Electronics Holdings

Like Halfords, defence play Ultra Electronics (LSE: ULE) has seen its share price erode more recently and the business has conceded 9% during the past three weeks alone. However, I believe this represents a solid entry point as improving economic conditions from key Western customers drive demand for its high-tech gear.

The Greenford firm saw revenues slide 2.7% during January-June, to £331.7m, caused predominantly by the termination of a contract to update IT systems at Oman Airport. Still, Ultra Electronics expects performance to pick up during the second half of 2015, and I believe the company’s expertise in hot growth areas like cyber security should pay off handsomely looking even further down the line.

On top of this, Ultra Electronics also has an appetite to boost growth through shrewd acquisitions — just last month the firm snapped up the electronics division of Kratos Defense & Security Solutions for $265m, giving its Communications & Security arm further fuel. Against this backcloth the number crunchers expect Ultra Electronics to bounce from a 3% earnings decline this year and record an 8% increase in 2016, figures that create handsome P/E ratios of 13.9 times and 12.7 times correspondingly.

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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.