Investing in shares is a tough task at the best of times. The stock market’s continual ebb and flow between joy and despair means that investors can frequently find themselves on the wrong side of consensus views for extended periods.
However, today’s investment climate is particularly challenging. Risks such as the war in Ukraine, a cost of living crisis, Covid lockdowns in China, high inflation and rising interest rates make it exceptionally difficult to determine how stock markets will perform over the coming months.
Some investors may decide to hold defensive stocks that are insulated from an increasingly downbeat economic outlook. Others may feel that the economic tide will turn and that growth stocks are therefore appealing.
In Questor’s view, investors do not necessarily face a binary choice between safety and growth. Indeed, some companies, such as the FTSE 100 pharmaceutical company AstraZeneca, offer the best of both.
From a defensive standpoint, its recent half-year results highlight its financial strength amid an uncertain global economic outlook. Revenue and core profits grew by 48pc and 44pc respectively and all business units delivered an improved performance.
This led the company to raise its sales guidance for the full year: it now expects a percentage increase in the low 20s. A net‑debt‑to‑equity ratio of 69pc further highlights its capacity to withstand the sharp monetary policy tightening that is taking place across the developed world.
The company’s improving financial performance allows it to invest greater sums in research and development. Core R&D spending in the first half of the year increased by 40pc and as a proportion of sales it is now 1 percentage point higher at 23pc than in the same period of the previous year. This should strengthen its product pipeline in an era when rising healthcare spending creates significant long-term growth opportunities.
The world’s population is rapidly growing and quickly ageing. Between now and 2050 the UN forecasts it to grow from eight billion people to 9.7 billion people.
Over the same period the number of people aged 65 or over is expected to almost double to 1.6 billion. With 71pc of worldwide deaths caused by non-communicable diseases such as cancer, cardiovascular disease and others that cannot be transmitted between people, demand for AstraZeneca’s oncology and biopharmaceutical products is likely to rise.
Last year’s acquisition of rare diseases specialist Alexion provides a further long-term growth opportunity. Currently, 400 million people are affected by a rare disease but only 5pc of the more than 7,000 rare diseases known to exist today have treatments.
Separately, AstraZeneca’s large presence in emerging markets, which account for 28pc of its revenues, makes it well placed to capitalise on their growth potential. In fact, according to the IMF they will grow almost three times faster than developed markets next year.
Of course, AstraZeneca is not immune from potential threats to its performance. Rumours persist that its chief executive, Pascal Soriot, is to leave in the near future. His eventual departure, after he led the company to a vast improvement in fortunes since he took over a decade ago, is almost certain to cause a degree of uncertainty, which is likely to be reflected in heightened share price volatility.
Similarly, the company’s outperformance of the wider stock market means it trades on a relatively rich valuation. It has gained 35pc and beaten the FTSE 100 by 41 percentage points since this column first advised readers to buy the stock in August 2019. As a result it now trades at around 17 times forecast earnings.
In Questor’s view, AstraZeneca is extremely worthy of its premium valuation. Its potent mix of defensive and growth characteristics is particularly attractive in the current economic environment.
Its exposure to emerging markets, its focus on non-communicable diseases that are likely to become more prevalent and its growing R&D spending mean it should remain a mainstay of investors’ portfolios. Buy.
Questor says: buy
Share price at close: £99.44
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