Despite the impressive performance of FTSE 100 shares in 2023 so far, fears of a recession continue to rise. While inflation has started to cool, it still stands at 8.8% as of January. And, subsequently, new interest rate hikes are expected to arrive in the coming months.
While the contractionary monetary policy will undoubtedly help get inflation back under control, it places a lot of pressure on consumers. And prolonged exposure to rising prices, combined with higher mortgage bills, is a proven recipe for a recession.
As bleak as the situation seems, it’s important to note that a sharp economic downturn is far from guaranteed. But let’s assume the worst-case scenario. What stock should investors buy to protect (or even grow) their portfolios in a recessionary Britain?
The FTSE 100’s flagship shares
Economic volatility doesn’t just affect consumers. Businesses often find themselves in trouble as borrowing costs increase and growth becomes more challenging. But a few industries have proven to be resilient to such headwinds. And healthcare is one of them.
Even when the cost of living is skyrocketing, people still need access to medicines and treatments. After all, infections and diseases don’t care about economics. And with new patients arriving daily, drug demand remains strong, even during a recession.
There are plenty of FTSE 100 shares serving the healthcare sector. But AstraZeneca (LSE:AZN) is my top pick. The firm specialises in fighting many diseases but is primarily focused on cancer. And with an impressive patent portfolio, the group has had little trouble expanding its top and bottom lines over the last decade.
What’s more, management is on track to launch 15 new drugs by 2030, several of which are expected to deliver $1bn+ in annual sales. Needless to say, this pipeline bodes well for its long-term performance. And with plenty of resilience to short-term economic volatility, AstraZeneca seems like it’s in a favourable position.
Investing always has risks
But even one of the largest pharmaceutical companies in the world isn’t immune to disruption. Drug development is hard. Beyond the difficulties of science, bringing a new treatment to market is a costly affair and a regulatory nightmare. Sobering fact: more than 90% of drug candidates fail. And even the ones that make it to market are never guaranteed to recover their typical multi-billion-dollar development costs.
AstraZeneca has some deep pockets. And that’s undoubtedly a handy advantage. But something that concerns me is the number of patent expiries that are fast approaching. Looking at its 2022 results, roughly half of the firm’s revenue stream stems from drugs that are going off-patent within the next five years.
When this happens, generic pharmaceutical companies can swoop in, replicate AstraZeneca’s drugs and decimate its cash flow. The firm has plenty of late-stage projects in the pipeline to offset this looming storm. However, as previously stated, there’s no guarantee regulators will give the green light.
So while the potential rewards are high, so are the risks. And investors need to consider whether they’re comfortable adding that to their portfolios. Personally, I’m optimistic. AstraZeneca has an impressive track record under the leadership of CEO Pascal Soriot.
Therefore, even with other healthcare companies in the FTSE 100, AstraZeneca shares are what I’m considering for my portfolio today.
