Should I buy AstraZeneca shares on vaccine news?

AstraZeneca shares are up by 80% in five years. Roland Head’s been taking a look at the pharma stock as a possible buy for his 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.

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?

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.

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.

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.

More on Investing Articles

Investing Articles

5 steps to start buying shares with under £500

Learn how this writer would start buying shares with a few hundred pounds in a handful of steps, if he…

Read more »

Young happy white woman loading groceries into the back of her car
Investing Articles

The FTSE 100 offers some great bargains. Is this one?

Our writer digs into one FTSE 100 share that has had a rough 2024 to date, ahead of its interim…

Read more »

Smiling white woman holding iPhone with Airpods in ear
Investing Articles

£9,000 of savings? Here’s my 3-step approach to aim for £1,794 in passive income

Christopher Ruane walks through the practical steps he would take to try and turn £9,000 into a sizeable passive income…

Read more »

Group of young friends toasting each other with beers in a pub
Investing Articles

I’d buy 29,412 shares of this UK dividend stock for £150 a month in passive income

Insiders have been buying this dividend stock, which offers an 8.5% yield. Roland Head explains why he’d choose the shares…

Read more »

Red briefcase with the words Budget HM Treasury embossed in gold
Investing Articles

Could the new UK budget spell growth for these 6 FTSE stocks? I think so!

Mark David Hartley considers six UK stocks that could enjoy growth off the back of new measures announced in the…

Read more »

Investing Articles

With a 6.6% yield, is now the right time to add this income stock to my ISA?

Our writer’s looking to boost his Stocks and Shares ISA. With this in mind, he’s debating whether to buy a…

Read more »

Dividend Shares

This blue-chip FTSE stock just fell 12.5% in a day. Is it time to consider buying?

Smith & Nephew is a well-known, blue-chip FTSE stock with a decent dividend yield. And its share price just dropped…

Read more »

Investing Articles

At 72p, the Vodafone share price looks to be at least 33% undervalued to me

Our writer looks at a number of valuation measures to determine whether the Vodafone share price reflects the fair value…

Read more »