Should you follow Neil Woodford and sell AstraZeneca plc?

Neil Woodford has sold down his holding in AstraZeneca plc (LON: AZN). Should you copy him?

| 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.

Over the weekend, I was reading the latest investment commentary from Woodford Investment Management. The team advised that while the year ahead does pose macroeconomic challenges, it is confident that its strategy is appropriate for the current economic conditions and is capable of delivering attractive returns for investors.

However, there was one thing that surprised me within the update and which has gone under the radar. Neil Woodford has been selling down his stake in pharmaceutical giant AstraZeneca (LSE: AZN). At the end of December, AZN had a 6.8% weighting in Woodford’s Equity Income fund. By 28 February, the holding was just 1% of the portfolio. So, why has Woodford sold AstraZeneca and should investors follow his move?

Sizeable outflows

It’s no secret that, after a couple of years of poor performance, Woodford’s funds have experienced sizeable outflows in recent months. Investors have lost patience. When this happens to a fund, the portfolio manager has the challenge of raising capital to meet the redemptions. Sometimes, a portfolio manager will choose to slice a few percent off every holding in the portfolio. At other times, the manager will take a more active approach and sell specific holdings. This is what Woodford has done. In order to meet redemptions and rebalance the portfolios, he has been reducing his exposure to AstraZeneca across all mandates.

Investment case

The interesting thing is, he still believes the long-term investment case for AZN is “appealing.” The team believes the pharma giant has been successfully transformed under the leadership of CEO Pascal Soriot and that the group’s prospects are not fully reflected in the share price. It advised that “not a great deal” has changed as far as the investment case for goes and that it is still attracted to the pipeline story. Furthermore, Woodford is still bullish on healthcare as a theme.

At the same time, he believes many other stocks have become increasingly attractive from a valuation perspective recently. He has been keen to rebalance his portfolios and position them where the gap between current share price and the ‘long-term fundamental valuation opportunity’ is widest. In particular, he sees valuation opportunities in domestically-exposed stocks such as Lloyds Banking Group, Barratt Developments and Crest Nicholson at present. He has been adding to his positions here, as well as to other stocks such as Provident Financial and Babcock International. 

Should you follow Woodford?

I can understand the reasoning behind selling, to a degree. The portfolio manager has had to raise a lot of capital to meet redemptions and with AstraZeneca trading on a forward-looking P/E ratio of 20.7, it’s one of the more expensive stocks in his portfolios. In contrast, Lloyds trades on a forward P/E of just 8.6. Trading out of AZN and topping up cheaper stocks makes sense.

Having said that, I don’t think investors should necessarily do the same and bail out. While the stock may not be a bargain buy at its current valuation, the long-term story does look attractive. The world’s ageing population is likely to result in robust demand for pharmaceutical products in coming decades, and with a healthy pipeline of drugs in development, the £63bn market cap company looks well placed to capitalise. With a dividend yield of 4% on offer, I rate the stock as a ‘hold.’

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.

Edward Sheldon owns shares in Lloyds Banking Group. The Motley Fool UK has recommended AstraZeneca and Lloyds Banking Group. 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

Mature Caucasian woman sat at a table with coffee and laptop while making notes on paper
Investing Articles

10% dividend growth! 2 FTSE 100 stocks tipped to supercharge cash payouts

These FTSE 100 stocks have strong records of dividend growth. And they're expected to keep on delivering, as Royston Wild…

Read more »

Investing Articles

Down 17% in a month and yielding 7.39%! Is this FTSE 100 share a screaming buy for me?

When Harvey Jones bought Taylor Wimpey last year he thought this FTSE 100 share was a brilliant long-term buy-and-hold. Has…

Read more »

Investing Articles

Here’s how I’m using a £20k ISA to target £11k+ in income 30 years from now

Is it realistic to put £20k in an ISA now and earn over half that amount every year in passive…

Read more »

Young black colleagues high-fiving each other at work
Investing Articles

If I could only keep 5 UK stocks from my portfolio I’d save these

Harvey Jones is running through his portfolio of top UK stocks to see which ones he couldn't bear to do…

Read more »

Midnight is celebrated along the River Thames in London with a spectacular and colourful firework display.
Investing Articles

I’m aiming for a million buying unexciting shares!

By investing regularly in long-established, proven and even rather dull businesses, this writer plans to aim for a million. Here's…

Read more »

Investing Articles

3 things to consider before you start investing

Our writer draws on his stock market experience to consider a few vital lessons he would use to start investing…

Read more »

Investing Articles

Will this lesser-known £28bn growth stock be joining the FTSE 100 soon?

As the powers that be plan a reorganisation of Footsie listing rules, this massive under-the-radar growth stock could find its…

Read more »

Investing Articles

Fools wouldn’t touch these 5 FTSE 350 flops with a bargepole – how come I own 3 of them?

Harvey Jones took a chance on three struggling FTSE 350 stocks in the hope that they'd stage a dramatic recovery.…

Read more »