When considering any stock for your portfolio, don't be swayed by just the positives. Examine its pros and cons, and decide whether it's possible upside outweighs its risks. Let's take a look at AstraZeneca (NASDAQ:AZN) today, and see why you might want to buy, sell, or hold it.
Based in London and sporting a market capitalization of about $57 billion, AstraZeneca is a pharmaceutical giant. Its stock is up 16% over the past year, but over the past decade, it has averaged annual growth of just 6%. Does this company merit a berth in your portfolio?
One reason to consider buying AstraZeneca is its business. With the world's population growing, getting older, and living longer, demand for health-care products and services is likely to remain in demand.
Better still, unlike many biotech companies and smaller pharmaceutical concerns, AstraZeneca isn't just working on some formulas that might or might not end up approved by the FDA. It actually has products on the market, generating revenue. Its Atacand tackles hypertension and heart failure, while Crestor addresses high cholesterol, Nexium treats acid reflux, and Symbicort tackles asthma and some pulmonary diseases. Want more? There's Zoladex (prostate and breast cancer), Seroquel IR (schizophrenia and bipolar disorders), Losec/Prilosec (acid-related diseases), plus dozens of treatments in its pipeline.
AstraZeneca has promising partnerships, too, working with Bristol-Myers Squibb (NYSE:BMY) to tackle diabetes, with Nektar Therapeutics (NASDAQ:NKTR) on a treatment for constipation, and with Dynavax (NASDAQ:DVAX) on an asthma treatment. AstraZeneca and Bristol-Myers Squibb bought the promising biotech Amylin recently, which had developed a once-a-week injectable diabetes drug. Meanwhile, the two companies have a diabetes drug, Forxgia, which has been approved in Europe after being rejected by the FDA (which might review a new application for it next year).
If you're looking for income from your investments, AstraZeneca delivers, with a recent dividend yield near 6%. It has been hiking that payout by an annual average of about 10.5% over the past five years. That bodes well for further increases, especially given its reasonable 58% payout ratio.
If you'd prefer to see pharmaceutical companies run by scientists or clinicians instead of people trained primarily in business, AstraZeneca scores here, having recently appointed a former veterinarian to its top post.
A reason to be hopeful about new CEO Pascal Soriot is this: One of the first things he did was suspend share buybacks. Like many companies, AstraZeneca's share repurchases have not been a clearly good move for shareholders, and Soriot is right to question them, or at least to wait until the stock is more clearly undervalued. It's also a signal that he might prefer to spend those billions in other ways, such as perhaps by acquiring other companies.
One reason to consider steering clear of the company is found in its financial statements: Revenue is not growing briskly, and while earnings had been growing, they recently dipped. (Earnings that grow faster than revenues are typically a reflection of successful cost-cutting.) Free cash flow has been substantial but has also dipped lately. (On the plus side, long-term debt is generally trending downward.)
Basically, business hasn't exactly been going gangbusters, and the company has laid off several thousand workers in response. Worse still, it faces serious sales losses as various drugs lose their patent protection over time.
Given the reasons to buy or sell AstraZeneca, it's not unreasonable to decide to just hold off on it. You might want to wait for its revenue to start growing at a solid clip, or for it to receive more FDA clearances for new offerings. Perhaps wait to see if some new blockbusters come along to replace aging ones.
Or you might just check out some other interesting biotech or pharmaceutical companies, to see if they inspire more confidence or offer more promise. Amarin (NASDAQ:AMRN), for example, has received FDA approval for its triglyceride-lowering drug Vascepa, which could be on the market next year. Some would like to see the company acquired, so that deeper pockets could do the marketing.
I'm holding off on AstraZeneca for now. Everyone's investment calculations are different, though. Do your own digging and see what you think. The company may perform spectacularly in the coming years, but remember that there are plenty of compelling stocks out there.
Editor's note: A previous version of this article misstated the amount of AstraZeneca's dividend. The Fool regrets the error.