Forex trading has become increasingly popular in recent years. Investors seem to be attracted by the potential to make quick profits betting on currencies that can quickly change direction.
The risk of loss is, of course, relatively high. That’s partly why it may be a better idea to buy shares in a growth stock such as AstraZeneca (LSE: AZN). It appears to offer an improving financial outlook, while also trading on a fair valuation and having defensive characteristics.
Alongside another growth share that released an encouraging update on Thursday, AstraZeneca may offer a better chance of generating high long-term returns than forex trading.
Growth potential
The stock in question is budget hotel operator easyHotel (LSE: EZH). Its trading update for the first six months of its financial year showed a rise in system sales of 24% to £19.9m, while revenue increased by 47% to £7m. Its hotels outperformed the wider UK market, with consumer confidence coming under pressure. But this may suit the business, since its budget offering could prove popular among consumers who are looking to trade down to cheaper options.
The company’s actions to drive occupancy appear to be having a positive impact on its performance. It is also seeking to capitalise on economic weakness in order to expand its development pipeline in target destinations.
Looking ahead, easyHotel is expected to post a rise in earnings of 300% in the current year. It trades on a price-to-earnings growth (PEG) ratio of 0.2, which suggests that it offers excellent value for money. While potentially risky due in part to its small size, it could offer high returns in the long run.
Changing business
Although AstraZeneca may not be considered a growth stock by many investors due to its disappointing performance over recent years, the investment it has made in its pipeline has led to a changed business. In recent quarters it has reported improving growth, with its bottom line due to rise by around 13% in the current year. This suggests that the challenges it has faced in recent years in terms of the loss of patents on blockbuster drugs are beginning to fade.
As a result, now could be a good time to buy the stock. It trades on a PEG ratio of 1.7, which indicates that it offers a wide margin of safety. That’s especially the case since the company has a defensive business model that is relatively independent of the wider economy when it comes to delivering growth. And, with it having strong cash flow, its pipeline investment could increase over the medium term.
Certainly, trading forex may sound more exciting than buying shares in a healthcare company such as AstraZeneca. But with the world’s population growing and ageing, the company could have a real growth opportunity, while its stable balance sheet and resilient growth prospects mean that its risks may be significantly lower than those experienced when trading forex.
