AstraZeneca (LSE: AZN) (NYSE: AZN.US) appears to be finally turning a corner. Here are five ways it could ultimately make you rich.
1) The surprise factor
Investing in AstraZeneca has been a labour of love in recent years, dividends notwithstanding. An arid drugs pipeline, patent expiries, falling operating profits and European pricing pressures made this a painful business to invest in. Last time I looked at this stock, in October, it traded at 3162p. Now you have to pay 3851p. That sharp 22% gain took me by surprise. And there may be more pleasant surprises to come.
2) By growing faster than expected
Earlier this month, chief executive officer Pascal Soriot cheered markets with this upbeat statement: “Following the acquisition of Bristol-Myers Squibb’s interests in the companies’ diabetes alliance… AstraZeneca continues to believe a return to growth should come earlier than analyst consensus currently forecasts.” He also said the company has made good progress in its three core therapeutic areas of oncology, cardiovascular/metabolic disease, and respiratory, inflammation and autoimmune diseases. The firm’s late-stage pipeline now has 11 Phase-III programmes, almost double last year’s number, and 27 Phase-II programmes. It is great to hear some optimism at last. More please.
3) Because it is nicely priced
Last week, the European Commission granted marketing authorisation for Xigduo, AstraZeneca and Bristol-Myers Squibb‘s treatment for type 2 diabetes. I expect its replenished drugs pipeline to gush out some more good news, lifting the share price. If you invest now, you can buy into this more promising outlook at the modest price of 10 times earnings. That compares nicely to rival GlaxoSmithKline, which trades at a pricier 14.2 times earnings.
4) Demographics are on its side
The Western world is getting older. We’re also getting fatter, and emerging markets are filling out as well. You may see that as bad news. Investors in AstraZeneca may see it in a rather different light. It is targeting new treatments at illnesses of age and affluence, such as heart disease, cancer and diabetes. This makes its decision to buy Bristol-Myers Squibb out of its share in the diabetes business a forward-looking move. Soriot is banking on around 550 million people having diabetes by 2030. That’s a hefty target market.
5) Slowly but surely
AstraZeneca isn’t going to make you rich quick. Earnings per share fell a crunching 23% in 2013, and are expected to continue falling for the next two years, albeit at the slowing pace of 8% in 2015 and 2% in 2015. When Soriot talked of a “faster than expected” return to growth, he meant that 2017 revenues will be broadly in line with 2013 revenues. Investors will have to be patient, but while you wait, you can pocket its 4.4% annual yield, only marginally below Glaxo’s 4.62%. With this stock, it is the dividend that will make you rich in the end.