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Why I think the AstraZeneca share price could crush the FTSE 100 this year

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With the FTSE 100 having experienced weak performance in recent months, there appear to be a number of stocks which offer good value for money. One example is AstraZeneca (LSE: AZN). The pharmaceutical stock has slumped by 15% since mid-November, and could now offer a wide margin of safety.

With the company expected to return to profit growth in 2019, its valuation could become increasingly attractive. Alongside a stock which released a production update on Monday, it could offer FTSE 100-beating performance in 2019.

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Low valuation

The stock in question is Petra Diamonds (LSE: PDL). Its production in the six months to 31 December was relatively solid, with it reaching consistent levels. During the period, its production increased by 10%, and it is on track to deliver full year production of between 3.8 and 4 Mcts. Rising production led to an increase in revenue of 8%, with it reaching $201.1m.

Rough diamond prices reduced by 4% on a like-for-like basis compared to the second half of the previous year. This was due to seasonal weakness. The product mix during the period, especially at the company’s Cullinan mine, yielded prices which were at the lower end of historical ranges.

Looking ahead, Petra Diamonds is expected to report a doubling of its earnings in the current year. This puts it on a price-to-earnings growth (PEG) ratio of 0.1, which suggests that it offers a wide margin of safety. While its financial performance is likely to be relatively volatile, the company’s low valuation and growth potential could make it of interest to less risk-averse investors.

Improving outlook

While the performance of the AstraZeneca share price has disappointed of late, the company’s financial prospects are expected to improve. It is forecast to record a rise in earnings of 13% this year, which may lead to improving investor sentiment.

The company may also become more popular among investors as a result of the nature of its business. As a pharmaceutical stock, its financial performance may be less closely correlated to the wider economy than is the case for many of its FTSE 100 peers. Given that investors remain cautious about the outlook for the world economy, with risks such as a slowing China and rising US interest rates ahead, stocks with defensive characteristics could become increasingly popular.

Additionally, with AstraZeneca having long-term growth potential from investment in its pipeline, it may become an increasingly in-demand share. Its PEG ratio of 1.7 may not be among the lowest in the FTSE 100, but from a value perspective it seems to be fairly priced. Having outperformed the FTSE 100 by 36% in the last five years during an era when its earnings have consistently declined, a growing bottom line could mean that in 2019 and over the coming years it is able to beat the index by an even larger margin. As such, now could be the perfect time to buy it.

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Peter Stephens owns shares of AstraZeneca. The Motley Fool UK has recommended AstraZeneca. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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