These three stocks have struggled lately but that could make today an exciting entry point for long-term investors, especially those who relish dividends.
AstraZeneca
Pharmaceutical stocks are often seen as the old reliables of investing, but AstraZeneca (LSE: AZN) involves taking a bit of a punt. The gamble is this: you’re banking on chief executive Pascal Soriot’s strategy of replenishing the company’s pipeline of drugs faster than it can be drained by patent expiries and generic competition.
The impact of patent expiries is real and immediate: sales of its big selling heart drug Crestor are already declining in advance of its US patent expiry next month. The pipeline, by contrast, has yet to start flowing. Soriot reckons that new blockbuster treatments can deliver revenues of $45bn by 2023, up from $26bn last year, but that’s seven long years away. AstraZeneca is (quite rightly) pumping money into R&D, with core costs rising 21% in the last year, and all investors can do is hope it pays off, or risk losing their shirt. Are you content with a 4.52% yield while waiting to see if Soriot’s high stakes flutter plays out?
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Old Mutual Group
This is a troubled time for life companies as global stock market volatility unnerves investors, and Old Mutual Group (LSE: OML) can hardly have expected to escape unscathed, especially given its focus on emerging markets. Its share price is down 20% over the past year but it has revived lately in line with broader investor confidence, to rise 25% in three months.
To complicate matters, the board announced a major restructuring programme in March, which will separate the group’s four constituent businesses. This could be bad news for dividend investors. Payouts may be limited as the company looks to retain more capital to cushion the separation process, which should be completed towards the end of 2018. Group chief executive Bruce Hemphill says this should make it easier for each component to raise finance from capital markets, manage regulatory demands and release shareholder value. Once again, investors will have to be patient. Trading at 10 times earnings and yielding 4.53%, the price looks right for a company that reported pre-tax operating profit growth of 11% to £1.7bn in 2015.
Standard Life
Fellow insurer Standard Life (LSE: SL) has also had a rough 12 months, falling 27% in that time, but in contrast to Old Mutual there has been no bounce back lately, as its share price continues to fall. Yet it may also feel unfairly treated by stock markets, with 2015 results showing a solid 4% rise in assets under administration to £307.4bn despite volatile markets, driven by net inflows of £6.3bn.
It was able to reward loyal investors with total dividends of 18.36p, up 7.8% for the year, and today it yields a handsome 5.38%. Its valuation looks pricey today at 25 times earnings, but is forecast to fall to just 12.6 times by year end, due to anticipated earnings per share growth of 99% this year. Don’t be confused by its name: Standard Life is less of an insurer, more of an asset manager these days. HSBC has set a buy price of 490p which would suggest almost 45% upside from today’s 341p. Only a stock market crash can stop it now….
