The FTSE 100 has pushed downward in recent weeks after Liz Truss and Kwasi Kwarteng took their positions at numbers 10 and 11 Downing Street, respectively. One stock that has suffered is AstraZeneca (LSE:AZN), which is constantly swapping places with Shell for the crown of the most valuable company on the FTSE 100.
AstraZeneca shares were rising, reaching a 52-week high of 11,540p on August 25, but have slipped 13% since. Despite falling in recent months, the stock is still up 12% over the year.
Looking cheap?
It’s currently trading with a price-to-earnings (P/E) ratio of around 17. That’s more than the FTSE 100 average, but isn’t expensive for the sector. The average P/E ratio for the trailing 12 months (TTM) is 25. In that respect, AstraZeneca looks inexpensive.
The current discount versus the summer also suggests there might be some headroom for share price growth as conditions in the market have not deteriorated. The stock crossed 10,000p in March and, with one exception, this is the first time the share price has fallen below that benchmark in the last six months.
A positive outlook
AstraZeneca has one of the best pipelines in the industry, with 184 projects in development right now. By comparison, Pfizer only has 104.
However, it’s worth noting that its pipeline is dominated by label expansion developments for already approved drugs, as opposed to entirely new opportunities. Despite this, it is still a very impressive pipeline and it’s good to see the company so actively exploring growth opportunities.
AstraZeneca, arguably the crown jewel of the index, has also been active in acquisitions. The purchase of Alexion for $39bn also adds to the company’s growth potential, opening up new opportunities in medicines for rare diseases.
The Anglo-Swedish group also recently acquired US-based LogicBio Therapeutics, paying a sizeable 660% premium for the genome editing company. While expensive, it’s good to see the firm moving into new areas — and gene editing is among the most promising.
Benefitting from a weak pound
Revenue in H1 was geographically varied. Some 38% came from the US, 28% from emerging markets, 20% from Europe, and 14% from the rest of the world. And with the pound down considerably against the dollar this year, this is an area in which the pharma and biotech giant could really benefit as USD earnings will be inflated when converted back into GBP.
In fact, the pound is the worst performing currency in the G7 this year. So earnings in an array of international currencies will be inflated when converted back into pounds. Naturally, this could also mean paying more for foreign-derived inputs.
However, on the whole, I’m pretty bullish on AstraZeneca and see the current dip as a good buying opportunity. As a result, I’m looking to add this stock to my portfolio.
The post Down 10%, the most valuable stock on the FTSE 100 is starting to look cheap! appeared first on The Motley Fool UK.
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James Fox has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
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