Why Is AstraZeneca PLC (AZN) a Good Addition to Your Stock Portfolio Now?
We recently compiled a list of the 10 Best Undervalued UK Stocks To Buy Now. In this article, we are going to take a look at where AstraZeneca PLC (NASDAQ:AZN) stands against the other undervalued UK stocks.
The Economy of the United Kingdom
According to a report by KPMG, the economy of the UK is going through a combination of consumption tailwinds and falling inflation which is expected to support modest positive growth in the country for the remainder of 2024 and in 2025. The United Kingdom’s economy is projected to achieve GDP growth of 0.5% in 2024, and 0.9% in 2025, while inflation is expected to hold steady at 2.6% in both 2024 and 2025. Unemployment rates are also projected to be 4.5% in 2024 and 4.9% in 2025. The interest rates are anticipated to drop towards 3% by the end of 2025 and elections are likely to resolve political uncertainty, which would encourage business. However, geopolitical uncertainty, conflicts, and trade tensions could lead to inflation spikes and sharp shifts in monetary policies. Despite the uncertainty, KPMG's analysts remain optimistic about the future. Yael Selfin Vice Chair and Chief Economist at KPMG United Kingdom said:
“Global economic prospects are better for 2025, with inflation expected to return towards target and central banks more confident to cut policy rates from the current restrictive levels. The silver lining is a tailwind for big-ticket consumer purchases and business investment. Merger and acquisition activity could also continue to gather steam, as financial conditions ease and dry powder is deployed. However, the uncertainty remains around the political shifts, which could see more insular and protectionist economic policies.”
Investors view the UK market as particularly appealing due to its current valuations, which are similar to those of emerging markets when measured on a forward price-to-earnings basis. The UK equity index stands out for its substantial exposure to the energy sector, which could benefit significantly if the global economy outperforms expectations. Additionally, in times of escalating geopolitical tensions, the energy sector might also see gains, driven by rising prices. The composition of the UK equity market is well-structured, especially in terms of dividend yields and volatility. Compared to European equities, UK stocks are less volatile and offer higher dividend yields, making them an attractive option for investors at this time. Goldman Sachs is also anticipating modest growth in the United Kingdom’s 2025 and 2026 economic growth and forecasts the FTSE 100 Index to rise to 7,900 by the end of 2024. Goldman Sachs said:
“Low valuation, improving global demand and low supply aiding commodities stocks, and continued buybacks all support FTSE 100. We do not expect UKX to underperform as it did in 2023,”
According to Emma Wall, Head of Investment Analysis at Hargreaves Lansdown, the UK offers one of the best value opportunities among developed markets, particularly for those looking for undervalued investments. Despite its high performance in the FTSE 100, it is highlighted as being on a 45% discount compared to the U.S. market. Emma Wall sees the best value opportunity in the UK, citing the significant discount, international revenues, lack of leverage, and expectations of high dividend payouts as key reasons for this analysis.
The UK market presents a unique and compelling opportunity for investors, as the global economy shows signs of improvement and inflation stabilizes, the UK will benefit from economic growth despite some uncertainties, with that in context let’s take a look at the 10 best undervalued UK stocks to buy now.
Our Methodology
For this article, we used the Finviz screener to screen for UK-based companies that are trading at a forward P/E ratio of under 20 as of August 9. We listed the stocks according to their hedge fund sentiment, which was taken from our database of 920 elite hedge funds as of Q1 of 2024.
Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A pharmacy worker distributing prescription medicines to patientsreceiving treatment for oncology, cardiovascular, renal, metabolism and respiratory diseases.
AstraZeneca PLC (NASDAQ:AZN)
Number of Hedge Fund Investors: 46
Forward P/E ratio as of August 10: 19.60
AstraZeneca PLC (NASDAQ:AZN) is one of the top ten largest pharmaceutical companies in the world and has a market cap of $251.73 billion as of August 10. AstraZeneca PLC (NASDAQ:AZN) has substantial financial resources, research capabilities, and market presence. The company has more than 80,000 employees in over 100 countries and its products are sold in more than 125 countries. AstraZeneca PLC (NASDAQ:AZN) is a leader in the oncology, cardiovascular, renal, and metabolic diseases, respiratory and immunology along with other general diseases. The company is also becoming a leader in the cancer therapeutics market. As of the first quarter, the stock is held by 46 hedge funds which amounts to almost $2.17 billion. Fisher Asset Management is the largest investor in the company and has shares worth $654 million as of March 31.
AstraZeneca PLC’s (NASDAQ:AZN) stock price has increased by almost 15% over the last 12 months to $81 as of August 10 due to positive developments in its oncology (cancer treatment) franchise, particularly from successful clinical trials named LAURA, ADRIATIC, and DESTINY-Breast06. Additionally, AstraZeneca provided long-term revenue guidance for the first time, projecting $80 billion in revenue by 2030, which is a 75% increase from its 2023 revenue of $45.8 billion. This projection suggests an annual growth rate of 8% over seven years, which is higher than the growth targets of its competitors, such as GSK, Johnson & Johnson, and Novartis. Baron Health Care Fund in its Q2 2024 investor letter stated regarding AstraZeneca PLC (NASDAQ:AZN):
“Performance in pharmaceuticals and health care distributors was bolstered by solid gains from AstraZeneca PLC (NASDAQ:AZN) and McKesson Corporation, respectively. AstraZeneca is a global biopharmaceutical company with a focus on three main therapy areas based on its core competencies: oncology, cardiovascular and metabolic diseases, and respiratory illnesses. AstraZeneca’s shares increased given incremental positive news flow (LAURA, ADRIATIC, and DESTINY-Breast06 clinical trials) surrounding the oncology franchise. The company also published long-term guidance for the first time, projecting $80 billion in revenue by 2030, or 75% higher than 2023’s $45.8 billion. This projection implies an annual growth rate of 8% over seven years, compared with the 5% to 7% targets set by GSK and Johnson & Johnson and the 5% target set by Novartis.”
On June 17, AstraZeneca PLC (NASDAQ:AZN) announced that the FDA had approved a combination of Imfinzi plus two chemotherapy medications for oncology, called carboplatin and paclitaxel, for the treatment of primary advanced/recurrent endometrial cancer, which can affect over 67,000 women in 2024, according to the American Cancer Society. Imfinzi sales amounted to $1.11 billion in Q1 2024, an increase of 23.7% year-on-year, due to high demand in the United States and Europe for the treatment of patients with biliary tract cancer and small cell lung cancer. Enhertu, which is a high-efficacy medicine to treat patients with breast cancer also demonstrated a sales growth of 79.4% year over year and amounted to revenue of $461 million in the first three months of 2024, due to high demand from patients and doctors in the United States for the treatment of metastatic HER2-positive breast cancer, as well as non-small cell lung cancer.
AstraZeneca PLC (NASDAQ:AZN) has set an ambitious goal to reach $80 billion in total revenue by 2030. The stock has a forward PE ratio of 19.60, which is almost 4% lower than the sector average. The company still appears attractive given that earnings are expected to increase by 11% to $4.03 per share this year.
Overall AZN ranks 2nd on our list of the best undervalued UK stocks to buy. You can visit 10 Best Undervalued UK Stocks To Buy Now to see the other undervalued UK stocks that are on hedge funds’ radar. While we acknowledge the potential of AZN as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than AZN but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.