The Motley Fool

Should I buy AstraZeneca shares on vaccine news?

Image source: Getty Images

The AstraZeneca (LSE: AZN) share price fell slightly this morning, despite good news on the firm’s Covid-19 vaccine. Trials suggest the vaccine is up to 90% effective and AstraZeneca says it will apply for regulatory approval to start deploying the vaccine.

The vaccine isn’t the only new product in AstraZeneca’s portfolio. Sales of new medicines rose by 34% to nearly $10bn during the third quarter of the year. Should I be buying the shares, or do share price gains mean that a more cautious attitude makes sense?

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

Vaccine success

AstraZeneca shares spiked to a record high of £87 in July, when the company said phase one and two trials showed a good response to the vaccine. The firm has now released interim results from the large-scale phase-three trial of the AZD1222 Covid-19 vaccine. This has been developed in partnership with scientists at Oxford University.

The phase-three trial results show that the vaccine is 90% effective if it’s given as a half dose followed by a full dose at least one month later. Other dosing regimens were less effective, but the average achieved was 70%.

It seems like a good result to me. The firm is now applying for regulatory approval to start deploying the vaccine. The company has experience of large-scale manufacturing and says the vaccine can be stored in normal fridge temperatures for extended periods. This should make it easier to deploy than the Pfizer vaccine, which needs unusually cold storage.

Shareholders won’t benefit from the Covid-19 vaccine directly, as AstraZeneca has already said it won’t profit from the vaccine during the pandemic.

However, the rapid development of this new product suggests to me AstraZeneca’s all-important R&D division is performing well. This vaccine success also seems to support the group’s strategy of linking with many smaller external partners on new products.

New medicine sales growth

AstraZeneca’s recent third-quarter results confirm that newer products are making an increasing contribution to the group’s sales. Total sales for the first nine months of 2020 rose by 9% to $18,879m. But sales of new medicines climbed 34% to $9,894m. This means new medicines have generated more than half the group’s sales this year.

This result looks like evidence that chief executive Pascal Soriot’s strategy of investing heavily in new products is starting to pay off. Sales were in decline until 2018, but are now growing steadily again.

Investors have backed Soriot’s judgement and AstraZeneca shares have risen by 80% over the last five years. I want to increase my exposure to the healthcare sector, but is it too late to buy?

AstraZeneca shares: my verdict

I should probably have bought AstraZeneca shares when they were trading at around £40 five years ago. But now that the stock is hovering around £82, can it still deliver attractive returns?

As things stand, the shares are trading on about 27 times 2020 forecast earnings. City analysts expect profits to rise by 25% in 2021, which would push the price/earnings ratio down to 22.

At this level, I think a lot of growth is already priced into AstraZeneca stock. I don’t think the shares offer much of a safety margin. Any disappointment could knock the valuation, in my view. If I already owned the shares, I’d probably sit tight. But I think I’ll find better opportunities to buy in the future.

A Top Share with Enormous Growth Potential

Savvy investors like you won’t want to miss out on this timely opportunity…

Here’s your chance to discover exactly what has got our Motley Fool UK analyst all fired up about this ‘pure-play’ online business (yes, despite the pandemic!).

Not only does this company enjoy a dominant market-leading position…

But its capital-light, highly scalable business model has previously helped it deliver consistently high sales, astounding near-70% margins, and rising shareholder returns … in fact, in 2019 it returned a whopping £150m+ to shareholders in dividends and buybacks!

And here’s the really exciting part…

While COVID-19 may have thrown the company a curveball, management have acted swiftly to ensure this business is as well placed as it can be to ride out the current period of uncertainty… in fact, our analyst believes it should come roaring back to life, just as soon as normal economic activity resumes.

That’s why we think now could be the perfect time for you to start building your own stake in this exceptional business – especially given the shares look to be trading on a fairly undemanding valuation for the year to March 2021.

Click here to claim your copy of this special report now — and we’ll tell you the name of this Top Growth Share… free of charge!

Roland Head has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

Our 6 'Best Buys Now' Shares

The renowned analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply enter your email address below to discover how you can take advantage of this.

I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement.