Why AstraZeneca Could Outperform

Here's how AstraZeneca's management is pushing forward and what they seem to like in their pipeline.

Jun 6, 2014 at 10:02AM

AstraZeneca (NYSE:AZN) develops, manufactures, and markets products for patients suffering from a wide spectrum of chronic and acute medical conditions, including cancer, autoimmune disorders, neuropathy, and cardiovascular disease.

AZN Chart

Fundamental outlook
The pharmaceuticals sub-industry tends to be relatively volatile, with significant downside susceptibility due to the top-line pressure from imminent patent expirations of many blockbuster drugs. In AstraZeneca's case, adjusted earnings declined 26% at constant currency, marking one of the worst performances the company has suffered in many years. Further, the company continues to reel from patent expirations and anticipates further declines in 2014 and 2015. This follows a $350 million loss to various products going generic -- including Seroquel IR, Atacand, Nexium and Merrem -- in 2013.

Unfortunately for AstraZeneca, it only gets worse as its blockbuster cholesterol drug, Crestor, faces an onslaught of generic competitors once it loses patent exclusivity in May 2016. Subsequently, most of Crestor's market share will likely go to competing statins, such as generic versions of Pfizer's (NYSE:PFE) Lipitor.

AstraZeneca stock currently has a dividend with a forward yield of 5.2%, and it approached 52-week highs last month amid buyout talks with Pfizer. More recently, however, the stock has faltered due to the Board's decision to reject Pfizer's latest proposal to acquire AstraZeneca for nearly $120 billion. Investors should be aware that the door is still open for an acquisition, even though it may be unlikely given how expensive the transaction would likely have to be. Under UK takeover laws, Pfizer cannot submit another bid for six months. But if AstraZeneca initiates buyout talks with Pfizer, a new bid can be submitted after three months.

This Fool's take
AstraZeneca's outlook may be much brighter than it seems. While fundamentally, there is the prospect of increasing revenue from emerging markets which should bolster future earnings, the key point for me is that Pfizer was wiling to pay a great deal for Astra, and Astra still rejected it. Obviously, AstraZeneca believes that it is worth more than this bid. As a conservative value investor, I like to put my money on the side of the big boys, and Pfizer happens to be the goliath on the pharmaceutical playground. I also like a tasty 5.2% dividend yield while I wait and watch. But what is Pfizer all excited about?

AstraZeneca has several blockbuster-worthy drug candidates that Pfizer wants -- in addition, of course, to the financial engineering aspect (Pfizer could lower its tax rate by domiciling in the UK). For starters, Pfizer has its eyes on AstraZeneca's PARP inhibitor, olaparib, for platinum-sensitive recurrent ovarian cancer, which has a scheduled PDUFA date in October. Used in combination with cediranib, olaparib has shown to be highly efficacious, well tolerated and versatile. The PFS differential is enormous, with the cediranib/olaparib combination yielding almost double the benefit (17.7 months) as compared to olaparib alone (9.0 months).

While ovarian cancer represents a considerable, multi-billion dollar market in the U.S., AstraZeneca's olaparib could be competitive in other notable markets, including prostate cancer, solid tumors and neoadjuvant breast cancer. These opportunities could be huge for AstraZeneca.

AstraZeneca also has several other intriguing oncology drugs, including AZD9291, a tyrosine kinase inhibitor, for non-small cell lung cancer.

Final thoughts
With a broad pipeline and lots of long-term opportunities, Astra's management is clearly confident that the company can return to revenue growth by 2017. I think this is a stock Fools should watch closely.

Speaking of dividends -- check out these top dividend stocks for the next decade
The smartest investors know that dividend stocks simply crush their non-dividend paying counterparts over the long term. That’s beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor’s portfolio. To see our free report on these stocks, just click here now.

Trevor Lowenthal has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information

Compare Brokers