Stock market

If I had invested £5,000 in AstraZeneca shares 5 years ago, I now have

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Astra Zeneca (LSE: AZN ) shares recently hit record highs as investors rushed to update on trading and news of a new growth strategy. FTSE 100 The pharma giant

It made me think how much I could have earned if I had invested five years ago.

Stock market winner

Since 2019, AstraZeneca has been wildly healthy, benefiting from a new research and development process, significantly improved hit rates in clinical trials and sound acquisitions (including rare disease firm Alexion).

Naturally, this has not been ignored by the market. If I had invested £5,000 back then, I would have doubled my money by now.

This may not sound all that unusual when I consider that some UK shares have performed even better for investors over the same period. On the other hand, I would say that most UK stocks have not delivered anywhere near this result in the wake of Brexit, the pandemic and the cost of living crisis.

Importantly, it is only capital gain. This does not take into account the impact of any dividends received by AstraZeneca investors during this period.

Personally, I reinvest any cash I receive into the market. This allows me to make the most of the miracle that is compound returns. But I am aware that many old holders of Astrazeneca cannot do this. So, that’s why I haven’t included them.

Perhaps most importantly, the top end of the UK market has seen a price increase of just 12 per cent. This shows that a complicated, high-risk stock-picking strategy is not required to beat market returns.

Still worth buying?

Sadly, I did not invest at least directly in AstraZeneca shares during this period. So, have I missed the big pharma boat?

Well, the current valuation – a forecast price-to-earnings (P/E) ratio of around 20 – suggests that the good news is already there. GSK Trades at a P/E of 10. It also comes with a 3.7% dividend yield that looks like it can easily add to the profits.

That doesn’t mean GSK is necessarily a better buy as things stand. It has its own problems, including litigation headaches and an underpowered drug pipeline.

Going for development.

AstraZeneca also seems to be doing very well commercially. Revenue rose 19 percent to $12.7 billion in the three months to the end of March.

It is now looking to achieve full-year revenue of $80bn by 2030 – higher than analysts had previously estimated – partly by launching many more drugs between now and then.

Interestingly, broker Berenberg has just raised his price target to 15,000p. That’s up 20% or more from where it stands now.

The market clearly likes the story here. However, I would say that the aforementioned premium can be a problem. This means that the market may react more strongly if the company does not meet high expectations. This means shares can fall and even if it’s only temporary, buying at the ‘wrong’ time will reduce profits.

Strong and stable

What I believe is that both companies operate in a highly flexible sector that generates seriously high margins. Simply put, demand for what AstraZeneca makes remains relatively constant regardless of economic or geopolitical upheavals.

That’s why I continue to think that having some exposure to the industry within a portfolio — even directly or, like me, through funds — makes sense.


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