AstraZeneca plc And GlaxoSmithKline plc Are Strong Buys, But For Very Different Reasons

AstraZeneca (LSE: AZN) (NYSE: AZN.US) and GlaxoSmithKline (LSE: GSK) (NYSE: GSK.US) have both had massively differing fortunes over the past year. 

Astra couldn’t have risen faster, its share price up 40% in the last year. Glaxo couldn’t have been more slow, its share price down almost 15% in a year.

Yet both stocks look tempting today, if you approach them from very different angles.

Faster Astra

AstraZeneca’s steady recovery continues apace, according to recent Q3 results, with both revenues and earnings at the higher end of expectations. Sales rose strongly in the US and emerging markets, while its three core franchises, Brilinta, respiratory and diabetes, posted an impressive 38% rise in sales.

AstraZeneca’s pipeline was once a worry, but is now stuffed with 121 products, of which 107 are in the clinical phase of development, with potential sales of anything between $23bn and $63bn a year.

Yet its share price recovery is partly down to investor suspicions that US giant Pfizer will return to table another bid. That may explain why it is just 4% below its 52-week high of 4845p.

I don’t like buying on takeover talk, but would rather invest in the company’s long-term future as a science-led, research-driven pure pharmaceutical group.

On that basis, its long-term prospects look strong.

Go-Slow Glaxo

AZN isn’t cheap any more, however, trading a 14.4 times earnings, and yielding 3.8%. If you want a cut-price recovery play, Glaxo, rather embarrassingly, finds itself in that position.

At today’s 1411p, it is 17% below its 52-week high. That leaves it trading at just 12.6 times earnings, incredibly cheap for what is supposedly one of the most solid stocks on the FTSE 100. Even better, it yields a whopping 5.5%.

I wish it was all down to that China bribery scandal, but Q3 results showed a worrying 10% drop in US pharmaceuticals and vaccines turnover to $1.27bn, and a 2% drop in Europe.

Glaxo has now taken Astra’s place as a troubled recovery play, and a return to form could take some time, given sluggish predicted earnings per share growth of just 2% in 2015.

But it is also putting its faith in R&D, predicting a sustained flow of new pharmaceutical products over the next five to 10 years.

Road To Recovery

Each stock presents a very different investment case today. But the long-term result should be the same: steady, long-term income and growth from two research-led blue-chip giants.

AstraZeneca and GlaxoSmithKline are in a different place right now, but ultimately heading in the same direction.