Why AstraZeneca plc and Shire plc are 2 growth stars
30 years ago cancer was a disease that was almost incurable. Today, more people survive cancer than die from it. The world -- particularly science and technology -- continues to make real progress, day after day, and year after year.
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New frontiers are opening up
Step-by-step improvements are what scientific research is all about. And pharmaceutical companies AstraZeneca(LSE: AZN) and Shire(LSE: SHP) are two of the leading exponents in Britain.
After a series of patent expiries in the past few years, many commentators were asking where the healthcare industry should go. Yet while the products that have, until now, been the main source of profits for this sector are starting to make less money, the new frontier is biotechnology, genetics and the high-growth biosciences sector. At the intersection of chemistry, biology and physics, research in this area will drive the pharma industry in years to come.
And, crucially, there is an increasing market for these treatments. The world's population is growing, it is ageing, and it is wealthier. This means that 'rich people's diseases' such as cancer, heart disease and diabetes are on the rise globally. Meanwhile, healthcare spend, particularly in emerging markets, is starting to climb.
A few years ago AstraZeneca was in the doldrums, and its share price was moribund. But a clear strategy, focussed on world-class research and new healthcare technologies, has made this company now one of the most successful drugs firms in the world.
A good time to buy
AstraZeneca's share price has fallen back recently, and I think this is a good time to buy in. The 2016 P/E ratio is expected to be 13.8, with a dividend yield of 5.1%. Earnings are on the up, and this company appeals as both a growth and a dividend play. Growth will come both through biotech medicines and expansion in emerging markets.
A few years ago Shire was a largely unknown company. Today it presents a different view of the future of the pharmaceutical industry. It is effectively a cluster of bioscience start-ups. Instead of treatments for common illnesses, it focusses on specialist research into rare diseases that, until recently, could not be cured. It has thus brought hope to thousands of lives.
You would have thought that such a company could not be viable, yet this is now a £25bn firm that has emerged seemingly out of nowhere, and which is expected to make over £2bn in pre-tax profits this year.
Shire's share price has also fallen back recently, and it is now very reasonably priced, at a 2016 P/E ratio of 15.2. It is just starting to pay out a dividend yield, with a current income of 0.35%. This is strong growth play, and is another way to bet on Britain's bioscience industry.
After doom-mongering aplenty about Big Pharma in this country, I think it is time to be optimistic once more about this industry. It is a great time to buy into these growth stars.
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Prabhat Sakya has no position in any shares mentioned. The Motley Fool UK has recommended AstraZeneca. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
