While the FTSE 100 may have experienced a period of high volatility recently, it continues to offer a stronger return profile than a cash ISA. Low interest rates and returns that are below inflation could make a cash ISA even less appealing in future, while the FTSE 100 offers a 4% yield, plus growth potential.
AstraZeneca (LSE: AZN) is a large-cap share which seems to offer high total return potential after a period of share price growth. It appears to have a wide margin of safety at a time when some stocks seem to be somewhat overvalued following a decade-long bull market.
High price
One such company is Croda (LSE: CRDA). It released a third quarter trading update on Thursday which showed the strong sales momentum of the first half of the year has continued. Its core business constant currency sales have increased by 4.5%, with growth recorded across all regions as the company focused on greater innovation.
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In its Personal Care segment, sales moved 4.9% higher, while Life Sciences posted sales growth of 8.5%. The Performance Technologies segment reported an 1.8% rise in revenue, while the company’s ‘stretching the growth’ strategy seems to be working. A disciplined allocation of capital, and a focus on creating more technology and intellectual property, could lead to further improvements in the company’s financial performance.
While Croda seems to be performing well, its investment appeal appears to be somewhat limited after a share price rise of 18% in the last year. It has a price-to-earnings (P/E) ratio of around 26, which suggests that it may be overvalued, given that it’s due to record a rise in earnings of 6% this year, and 8% next year.
Growth potential
In contrast, AstraZeneca still seems to offer good value for money after its share price rose 14% in the last year. The company’s bottom line is due to return to growth next year, and this means it has a price-to-earnings growth (PEG) ratio of 1.7. Given its defensive characteristics and improving pipeline, this suggests that more capital growth could be ahead.
Of course, many investors may feel that the outlook for FTSE 100 shares remains uncertain at the present time. There are fears surrounding the US interest rate, while further tariffs could be placed on imports by a variety of countries across the world. In such a situation, defensive shares, such as those operating in the healthcare segment, could hold appeal, since they may offer lower correlation to the rest of the economy. AstraZeneca, for example, may be less dependent upon the world economy’s growth rate in the short run than a more cyclical stock.
With the company continuing to invest in its pipeline and having the financial strength to make further acquisitions, it seems to be in a strong position to outperform the FTSE 100 in the long run.
