The Reasons AstraZeneca plc Won’t Make You Wealthy

Why I wouldn’t make AstraZeneca plc (LON: AZN) a core share in my portfolio.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

AZNIt’s been a rollercoaster period for FTSE 100 shares. Earlier this week the index tumbled a massive 127 points and, while investors should focus not on what the market does day to day but rather look at the long term trend — which is always up, as history has shown us — it’s still never exactly fun seeing the majority of your holdings in the red.

Shares in companies like AstraZeneca (LSE: AZN) (NYSE: AZN.US) will continue to perform well regardless of economic conditions. These types of companies are called defensives because the needs they serve don’t ever go out of fashion. A cyclical company, on the other hand, ebbs and flows with the economic cycle.

It’s a smart strategy to base your portfolio around some core defensive stocks. I’ll be looking at whether AstraZeneca is a good bet for such a position among your holdings:

Should you invest £1,000 in BT right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if BT made the list?

See the 6 stocks

Not a star income performer

One such quality of a defensive share is a solid dividend. Studies have shown that high yielding shares easily outperform the market in the long run.

AstraZeneca’s full-year dividend for 2013 came in at 175p per share, which means it provides an income of around 4.5%. That’s high — the FTSE 100 average dividend yield is 3%.

The problem with AstraZeneca’s dividend is that since 2011 it has been broadly flat. Not only that, the dividend cover for 2015 is 1.6 times prospective earnings, while typically an income minded investor would like to see coverage of around twice earnings.

So far, the pharmaceuticals giant isn’t looking like a sure thing for a ‘core’ position in your portfolio. But let’s look further.

Profitability is still declining

The pharmaceuticals industry has taken a battering from low cost, generic competition to some of the best selling drugs of yesteryear. The way to combat this is to come up with new medicines that are covered by fresh patents, but R&D comes at a price, and it isn’t cheap.

AstraZeneca has made diabetes treatment a priority and invested $4bn to take control of Bristol-Myers Squibb’s interests in the firm’s diabetes alliance.

While this is a positive step, the company is lagging behind rival GlaxoSmithKline in this regard, who had five drugs approved by the regulator last year. By comparison, none of AstraZeneca’s treatments in phase III trials will apply for regulatory approval before 2016.

Before then, profits will continue to hurt. In 2013 profit slumped over 50% to $3.3bn with core earnings per share set to decline somewhere in the teens over the coming year.

Does it make a good ‘core’ share?

As far as being a core share goes I don’t really like like AstraZeneca. It’s dividend isn’t growing and it doesn’t have terrific cover. I wouldn’t proclaim a dividend cut is likely anytime soon, but there are probably better options elsewhere in the market, that are nonetheless safer in that regard.

Investing in AI: 3 Stocks with Huge Potential!

🤖 Are you fascinated by the potential of AI? 🤖

Imagine investing in cutting-edge technology just once, then watching as it evolves and grows, transforming industries and potentially even yielding substantial returns.

If the idea of being part of the AI revolution excites you, along with the prospect of significant potential gains on your initial investment…

Then you won't want to miss this special report inside Motley Fool Share Advisor – 'AI Front Runners: 3 Surprising Stocks Riding The AI Wave’!

And today, we're giving you exclusive access to ONE of these top AI stock picks, absolutely free!

Get your free AI stock pick

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Mark does not own shares in AstraZeneca.

More on Investing Articles

Investing Articles

3 reasons Tesla stock may be a long-term bargain

This writer is keen to buy Tesla stock at the right price. He doesn't think it's there yet -- but…

Read more »

Investing Articles

Nvidia stock is a lot cheaper than before – or is it?

Nvidia stock has been caught in the whirlwind of market volatility. This writer has been waiting to buy, so might…

Read more »

Top Stocks

3 FTSE stocks Fools are eyeing up for choppy markets

A selection of companies listed on the UK stock market on the watchlists of four Foolish investors.

Read more »

Young Black man sat in front of laptop while wearing headphones
Investing Articles

A £10,000 investment in Rolls-Royce shares last week is now worth this…

Harvey Jones says Rolls-Royce shares couldn't escape the volatility of recent weeks, but wonders if the recent dip is a…

Read more »

The flag of the United States of America flying in front of the Capitol building
Investing Articles

Prediction: in 2 years these S&P 500 stocks will be much higher than they are today

These two S&P 500 stocks have been beaten down in recent weeks. But Edward Sheldon expects them to move much…

Read more »

Investing Articles

10% yields! Why a volatile stock market is great news for passive income investors

The recent stock market volatility has given passive income investors the chance to earn double-digit returns. But they still need…

Read more »

Close up of manual worker's equipment at construction site without people.
Investing Articles

Down 65% from its highs, this FTSE 250 stock is one to consider buying low

Shares in a strong FTSE 250 company going through a cyclical downturn have caught Stephen Wright’s attention as a potential…

Read more »

Investing Articles

£20,000 invested in a Stocks and Shares ISA 5 years ago is now worth…

Stocks and Shares ISA investors have reaped enormous returns since the pandemic, but how much money have they actually made?…

Read more »