The New Year has started with a dramatic sell-off of stocks with exposure to China or to oil and mining. Hopes that last years falls marked the bottom seem to have been mistaken. What can you do to protect your wealth while staying invested in the market?
The UKs second-largest pharmaceutical business is a quality choice at a reasonable price, in my view. Unlike the FTSE 100s commodity sector, AstraZeneca is enjoying strong sales growth in China.
During the first nine months of last year, China grew by 17% to account for 11% ($1.9bn) of AstraZenecas total sales of $17.4bn. Chinas growing middle class is demanding western-style medical care and can apparently afford to pay for it. I suspect that Chinas terrible pollution problems are also helping to lift sales. Sales of AstraZenecas Pulmicort product for asthma and COPD rose by 47% to $354m during the first nine months of last year.
AstraZenecas adjusted earnings per share are expected to have risen by around 11% in 2015, putting the stock on a forecast P/E of about 15.
Although a modest drop in sales and profits is expected in 2016, this expectation is already reflected in AstraZenecas valuation. As a result, I think that its time for investors to focus on the longer-term potential for the firm to deliver growth from its R&D pipeline and from recent acquisitions.
In the meantime, AstraZenecas prospective yield of 4.1% provides a useful reward for being patient. I believe this payout is now unlikely to be cut, as the firms profits are stabilising and provide an adequate dividend cover of 1.5 times.
In my view, AstraZeneca could be a good long-term buy.
Barclays has repeatedly disappointed investors hoping for a recovery, but at least the banks operations in Asia are minimal. I dont think Barclays should be heavily affected by the ongoing China slowdown or the commodity downturn.
Will 2016 be any different to 2015 for Barclays long-suffering shareholders? As a shareholder myself, I think it could be. I intend to continue holding.
Analysts profit forecasts have continued to fall since new chief executive Jes Staley took charge, but Mr Staley hasnt yet had much time to make a difference. More importantly, by this point in the year analysts should have been guided to fairly accurate forecasts for 2015 earnings.
So whats on the cards? If the latest consensus forecasts are correct, Barclays will report adjusted earnings of about 22p per share for 2015. This would put the stock on a P/E rating of 9.3. A 3% dividend increase to 6.7p per share is also expected, pushing the stocks yield up to 3.1%.
A final attraction for value investors is Barclays net tangible asset value of 289p per share. At todays share price of 205p, this means you can buy Barclays stock at a 29% discount to its tangible book value.
In my view, this combination of low P/E, discount-to-book value and rising yield could provide a good starting point for a value investment.
Roland Head owns shares of Barclays. The Motley Fool UK has recommended AstraZeneca and Barclays. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.