So, what should you do with them right now?
Their shares carry very different risk profiles, and there are two investment strategies here.
To keep scenario A as simple as possible, Id structure a portfolio in which all my savings are split among these three shares by giving them an equal weight the same British pound value for each stock.
This way, Id achieve a properly balanced low-beta investment portfolio of 0.9 that shouldoutperform the FTSE 100 if the market turns south.But I do not fancy Astra, and Hikmas growth rate is truly appealing.
Excluding a differentweight for each stock in the investment portfolio, then the only possible scenario B is to choose one single stock and pull the trigger.
Which one, though?
M&A risk at Shire
Shire is the best of all based on fundamentals, but its stock carries more risk now than at any given time this year.Its latest deal-making ambitions will be debated for months, andBaxalta could be a pricey target there is a significant risk that we have to pay over the odds for its short-term prospects.
Shire stock trades on a forward earnings multiple of 28x, which represents a big premium against the market. Consider that the long-term averageP/E of the FTSE 100 is 15, which is not far away from the main indexs current valuation.That said, the average level of operating profitability for theindexs constituentsis severalpercentage points lower than that of Shire, while its dividends are expected to rise at 10%-20% a year.
Shire beats both the market and Astra, which is not a valid alternative, Id say but Hikma is more attractive!
Hikma vs Astra: an obvious call!
Hikmas growth prospects have become even more enticing following its acquisition of Roxane Laboratories and Boehringer Ingelheim Roxane for$2.65bn.
Its beta is the highest in the peer group and its shares trade on forward net earnings multiples that are a bit lower thanthose of Shire.
Hikmas equity value is about 20% that ofShire and and 10% of Astras,but is set to grow at a very fast pace if management keep up the good work it has done in recent years. Its capital allocation strategy makes a lot of sense, and has contributed to a two-year performance that reads +125%.
In spite of recent volatility, Hikma has fallen only 2% over the last month of trade, having outperformed Astra by one percentage point and Shire by nine percentage points.These trends could well last until the end of 2015 and beyond.
Finally, the problem with Astra is that we know its long-term growth projections, but we dont know how Astra will achieve its ambitions goals.
The most mature business of the three, Astra is an obvious play either for investors who believe that a change of ownership will materialise or for those who are interested in the sector and consider its beta, at 0.6, a good sign of a lower level of risk.
Well, I wouldt bet on that based on its trading multiple of 32x forward earnings.
But I have in mind pharma stock that trades at less than 20x earnings, which surely deserves your attention.
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