Stocks for the Long Run: AstraZeneca vs. the FTSE 100

If the long-run return on the market is 9.4% (as researchers at Credit Suisse say), investing in shares should be a no-brainer. Somehow, however, all too often our portfolios don't seem to reflect that attractive performance.

This is partly because that 9.4% number is an average derived from 100 years of data. Picking various time periods within that 100 years gives very different outcomes -- and the market almost never actually returns 9.4% in any single year.

Needless to say, unless you're holding a market tracker, your portfolio could have dramatically different results than what the market experiences. If you own a disproportionate amount of winning shares, your returns could be significantly better than the market. On the other hand...

In this series of articles, I'm looking at how individual shares have performed against the FTSE 100 during the past 10 years. Today, I'm assessing struggling pharmaceutical giant AstraZeneca (LSE: AZN.L  ) (NYSE: AZN  ) .

Over the last decade, AstraZeneca's performance has lagged behind that of the FTSE 100.

Source: S&P Capital IQ.

AstraZeneca's shares have struggled to keep up with the market over the past 10 years, posting an average annual return of 5.3%, which failed to match the FTSE 100's 7.2% return over the same period (these return calculations assume dividends were reinvested).

Despite trailing the market's performance for most of the past 10 years, it wasn't until 2009 that AstraZeneca started to look like a deal compared to the FTSE 100 in terms of price-to-earnings multiples. Astra's P/E has averaged 14 over the past 10 years, but has been on a general downward trend as fears about its pending patent expirations have scared off investors.

Sources: S&P Capital IQ and Thomson Reuters.

But that's all history for AstraZeneca. The future -- as with every pharmaceutical company -- is in its pipeline. Unfortunately, as my colleague Maynard Paton points out in this video, the pipeline story at Astra isn't exactly inspiring as continued patent expirations and a dearth of new products mean investors can expect sales and earnings to stagnate over the next few years.

However, Astra continues to invest more than $4 billion per year in researching the next big blockbuster and still pays out a well-covered dividend that is currently yielding over 6%. That is a pretty handsome payout to sit around waiting for Astra's labs to shout "Eureka!" sometime in the next few years.

Large caps for the long run
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Nate Weisshaar does not own shares of any company mentioned in this article. The Motley Fool has a disclosure policy.
We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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