NEWSLETTER
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If they made me buy just one FTSE 100 stock next year, what would it be? It’s a useful thought experiment because it forces me to consider all the qualities I really value in a stock. And with only one choice, I’d rather this stock check all of my boxes instead of just most of them.
Importantly, I wouldn’t invest only until 2024. As a long-term investor, my holding period is five to ten years, and ideally longer.
So this is what I’m looking for:
- A Rock-Solid Competitive Advantage
- An attractive industry with permanent and growing demand
- Exceptional management
- Obviously not overrated
After scanning up and down the Footsie, I opt for AstraZeneca (LSE: AZN). This is why.
A silent compound
First, it’s notable that the stock rarely attracts the same financial media coverage or the same daily search volume as, say, Lloyd’s either Rolls-Royce. However, with a market capitalization of £155bn, AstraZeneca is worth more than £100bn more than both blue-chip companies combined.
That’s not to say it doesn’t get attention, of course. The value of the healthcare sector has risen around 190% in 10 years, excluding dividends. But I don’t think it got the fanfare it perhaps deserves given this exceptional performance.
Attractions
Medicines are in constant demand, which makes them very resistant to recession. However, due to the costs and regulation involved, the pharmaceutical industry has very high barriers to entry. This can make it an attractive industry to invest in.
In my opinion, AstraZeneca’s huge research budget and global presence give it a lasting competitive advantage. It currently has more than 120 projects in phase II/III development in oncology, rare diseases and more. This massive project should more than make up for the inevitable clinical trial failures along the way.
Last year, the company posted revenue of $44.3 billion and $3.2 billion in net income. However, those numbers are about to rise as it enters new growth areas and the world’s population ages.
Slimming market
Shares trade at about 29 times trailing earnings. That’s less than its peers. Nordisk (41) and Eli Lilly (107), two stocks that have been booming lately due to enthusiasm around their respective weight loss drugs.
Interestingly, however, AstraZeneca also plans to enter this market after securing a licensing deal for an oral weight-loss drug. He hopes this pill can become a key differentiator against current injectable alternatives.
The growing weight-loss pharmaceutical industry could be worth up to $200 billion in the next decade, according to Barclays. So it’s definitely worth pursuing.
Now, one risk I would highlight here is media speculation about the retirement of former chief executive Sir Pascal Soriot. During his tenure, the pharmaceutical company has transformed into a forward-thinking, growth-oriented company.
Soriot has dismissed reports such as “fake news“. But could there really be smoke without fire? I’m not sure and it wouldn’t be easy to replace.
An omission that makes us scratch our heads
Given my optimism, why am I not already a shareholder?
To be honest, it’s a little disconcerting. Perhaps there has always been something more attractive (higher performance, faster growth) that has caught my attention. It is a pity.
To make amends, I will buy some AstraZeneca shares in 2024. They may not repeat their past outperformance, but I don’t think I will regret it in the future.
