Head To Head: AstraZeneca plc vs Rio Tinto plc

This is the worst time to be an investor. I mean, share prices are falling left, right and centre. China is crashing. The US is crashing. Britain is crashing. According to stock markets, the world is going to hell in a handcart. “Investing? Well, that’s for losers.”

But, in a way, it is actually the best time to be an investor. Because shares are as cheap as they have ever been. And when would you like to be buying shares? Well, when they are cheap, of course. There are an array of buying opportunities at the moment. And when the malaise finally lifts, you could be sitting on a tidy profit.

However, if you are buying in now, choose your investments carefully. In this article I will write about two investor favourites: pharma giant AstraZeneca (LSE: AZN) and mining company Rio Tinto (LSE: RIO). Which should you put your money into?


Five years ago, AstraZeneca was in a bit of a mess. Patent after patent was expiring, and the share price fell heavily as this seemed to be a drugs company with no future.

But in the past few years this business has been transformed, as chief executive Pascal Soriot has developed a company strategy akin to that of Roche, where he spent the first part of his career. A particular focus on biopharmaceuticals, notably anti-cancer drugs such as Iressa and Arimidex, has reaped big dividends.

AZN has not given up on the research-intensive, high margin business that has traditionally driven pharma company shares higher. And last year’s bid by Pfizer shows just how highly rated this firm now is.

What’s more, a growing demand for drugs in emerging markets is likely to mean a further route to growth for AstraZeneca. While a P/E ratio of 15.21 is not particularly cheap, a dividend yield of 4.45% appeals, and is well covered by profits. I would still rate this company a buy.

Rio Tinto

You can’t get much further removed from pills than drilling holes in the ground. Rio Tinto is a world-leading mining company which produces minerals such as aluminium, copper and nickel.

With China’s surge of investment in buildings and infrastructure over the last decade we have seen the greatest mining boom in history. But no boom lasts forever, and declining commodity prices are starting to hit Rio Tinto’s profitability. The aluminium price has more than halved from its pre-Credit Crunch high, and a similar trend can be seen with other metals and minerals.

Admittedly, this company is still highly profitable. But, for me, the trend is in the wrong direction. Rio is one to sell, not buy.

Foolish bottom line

Both of these are reputable firms and stalwarts of many a pension fund. But this illustrates the point that you should choose your blue-chip investments carefully. While AstraZeneca is a clear buy to me, I think Rio Tinto is one to avoid.

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Prabhat Sakya 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.