When Performance Is Punished, It Creates Opportunities for Long-Term Investors

In some ways, these feel like tough times for traditional investors. Yes, the major indices are still hitting new highs and everyone’s stock accounts and 401ks are doing just fine, but I am sure there are those who feel that they are missing out. They see percentage gains in the triple digits in stocks like GameStop (GME) or Tilray (TLRY) and think, “Why didn’t I get a piece of that?

If you are one of those people, I get your frustration, but potentially high reward plays with massive risk attached have always been there, and you have always eschewed them to this point. The publicity around these trades makes them feel ubiquitous, but they are, in fact, taken on by only a minority, and history shows that a lot of those who have made money will give it back before too long on some other high-risk trade. Your focus should remain, as it has always been, on getting decent long-term growth from your investments and building enough wealth to meet your goal, be that paying for college, retiring comfortably, or whatever. That means not taking on that kind of risk.

Yes, that can absolutely be frustrating, but the gyrations in the market do seem to be having one interesting effect. They are creating a situation where good, solid quarterly results are being punished. It seems that low double-digit growth is just not good enough, and who cares about profitability anyway? For long-term investors, though, that is what matters, and the current mood is creating some great opportunities.

This morning, for example, AstraZeneca (AZN) was trading lower than yesterday’s close after announcing their Q4 2020 results:

As you can see, the move lower is part of a long-term trend for AZN, but is that really justified?

That decline over the last few months is presumably in part because the Anglo-Swiss pharma giant has voluntarily done something that I suspect a lot of companies will be forced to do before long: they supplied their Covid-19 vaccine on a non-profit basis. It may be because of government regulation, or it may be because of public pressure, but as more and more vaccines get approved, profitable pricing of Covid vaccines look less and less likely generally. Those vaccines are increasingly seen as what economists refer to as a “merit good,” one that is allocated based on need rather than purchasing power, and there are not many people making the argument that multi-billion-dollar companies are entitled to bank big profits off the misery of the pandemic.

On that basis, a rapid acceptance of reality by AZN isn’t a bad thing at all, but the stock is still suffering. That would make sense if their core business were in trouble, but the numbers we saw today tell us that that is not the case.

AstraZeneca reported a 10% rise in sales in the quarter, with revenue topping the $7 billon mark. That didn’t include anything for the Covid vaccine, which the company has said they will report separately in future earnings filings. Rather, that increase was in core drugs, most notably in the oncology field. That may not be sexy, but it is sustainable. The company had a good quarter and forecast good times ahead, with revenue growth in the low teens and even faster profit growth, and yet the stock is lower.

Buying AZN at around $50 gives you a dividend yield of over 5% in a stock that has a PEG (price to earnings/growth) ratio of around 1.0 and a forward P/E of around 20. And should times get a bit tougher, they have over $8 billion of cash on hand and generate close to $5 billion in free cash flow each year. Call me old fashioned if you will, but to me, those are better reasons to buy a stock than an all-caps Reddit post could ever be.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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