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AstraZenaca: Profit Prescription

03/31/2014 8:00 am EST


Mark Skousen

Editor, Forecasts & Strategies, High-Income Alert

Based in London, our latest featured stock idea is one of the world’s leading pharmaceutical companies, operating in more than 100 countries, suggests Mark Skousen, editor of High-Income Alert.

AstraZeneca (AZN) produces leading drugs, including Atacand for hypertension, Crestor for lowering cholesterol, and Zoladex for prostate and breast cancer, are used by millions of patients worldwide.

In addition, it has 84 pipeline projects with more than 70 in various phases of clinical development.

Astra also has several highly profitable collaborations. It has an agreement with Amgen to commercialize monoclonal antibodies, a partnership with Ironwood Pharmaceuticals to commercialize linaclotide in China, and an agreement with BIND Therapeutics to develop a biologic for autoimmune and inflammatory diseases.

Make no mistake, this is big business. Sales at Astra topped $25.7 billion during the last 12 months. Other financial metrics look good, too.

Operating margins are 27%. Management is earning a healthy 11% return on equity. And the stock is in a pronounced uptrend, up 47% during the last year.

The company also operates in a recession-resistant industry. No one passes on his or her meds because the economy is weak. That’s a good thing to bear in mind when you’re well into a bull market. This one celebrated its fifth birthday last weekend.

I expect Astra to earn about $5 a share this year. That means the valuation is reasonable at 13 times prospective earnings. (The S&P 500 (SPX) currently sells at about 20.)

And, of course, we’ll collect a generous dividend, too. Astra currently yields 5.7%. That dividend should only grow in the months ahead.

So, pick up AstraZeneca PLC at market. And place a protective stop at $55. If you prefer to play this one more aggressively, try the July $70 calls.

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