AstraZeneca: A Healthy Pipeline

04/25/2016 8:00 am EST

Focus: STOCKS

Todd Shaver

Founder and Editor-in-Chief, BullMarket.com

Our latest featured recommendation is a United Kingdom-based pharmaceutical firm with a solid history of delivering high quality medicines to markets globally, asserts Todd Shaver, editor of BullMarket.com.

The biggest driver behind our decision to buy AstraZeneca (AZN) now is its product pipeline. Five drugs are currently in Phase 3 trials, including Brilinta, a drug for arterial thrombosis.

This condition is the result of a high-fat diet, smoking, high alcohol intake, a lack of exercise, and high cholesterol.

In other words, it is a lifestyle condition that is becoming increasingly common globally as a sedentary lifestyle and a western diet permeate the developing world.

While other companies are developing drugs to combat arterial thrombosis, there is plenty of room in this growing market for everyone.

Additionally, AstraZeneca has a solid reputation in this particular area of drug development, with over a dozen drugs for cardiovascular issues currently on the market.

AstraZeneca’s dividend has been growing over the last decade, until a steep drop in late 2015. The company follows the British custom of releasing two dividends annually, with one significantly larger than the other.

At first glance, the sudden drop in 2015, which was due to a cut in the second dividend of 2015, is alarming. However, this is a result of the strong US; since then, the US dollar has been down slightly.

The market has clearly priced in AstraZeneca’s revenue slowdown, dividend cut, and collapsing free cash flow.

With revenues set to tick upwards on a constant currency basis thanks to a healthy drug pipeline, the company’s capital gains upside is significant at current levels.

While waiting for the market to recognize that potential, investors can enjoy a strong and growing income stream. For these reasons, we rate AstraZeneca a strong buy in our High Yield model portfolio.

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By Todd Shaver, Editor of BullMarket.com

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