Hot stocks watch: Analyst says GSK shares better buy than AstraZeneca

on Apr 9, 2015
Updated: Oct 21, 2019

Pharmaceuticals and Big Oil are attractive choices for a long-term ISA investment, analyst Tony Reading at The Motley Fool has suggested, rating GlaxoSmithKline Plc (LON:GSK) higher than AstraZeneca (LON:AZN). Reading also favours Royal Dutch Shell Plc (LON:RDSA) over BP Plc (LON:BP).

According to Reading, the pharmaceutical industry is a relatively safe area to invest in as demand for medicines in both mature and emerging markets continues to rise, with pharma companies traditionally pocketing a significant amount of healthcare budgets irrespective of national fiscal constraints. Recent opposition to proposed reductions in the NHS budget illustrate how protective the public can be with regard to the provision of healthcare services.
Comparing the two biggest London-listed pharma groups, GSK and AstraZeneca, Reading notes that Glaxo has a solid business model and its scale gives it a competitive advantage due to its capacity to invest hefty sums towards R&D. The group’s investment in emerging markets is also likely to see a substantial long-term return.
On the other hand, whilst AstraZeneca has a high share price which has grown significantly in recent times due to an attempted takeover bid by Pfizer (NYSE:PFE), Reading believes that any disappointment would weigh on AstraZeneca’s share price.
With regard to investing in the oil and gas sector, Reading suggests that Shell is a better buy than BP and that plunging oil prices actually offer an opportunity for investors, despite the sector being viewed with general pessimism by many analysts, in terms of a potential recovery in oil prices.
Shell has been growing its dividend since 1945 and relatively speaking the recent 50 percent slump in crude prices is just another challenge for a company that has proven its ability to survive in the past. The group is also reducing costs and capital expenditure and may yet be permitted by the US to resume drilling in the Alaskan Arctic, Reading said.
In contrast, BP’s valuation is still restricted due to ongoing liability costs resulting from the Deepwater Horizon oil spill which occurred in 2010 in the Gulf of Mexico. In addition, BP has a 20 percent stake in Rosneft, the Kremlin-backed oil giant, which is now subject to western sanctions.
As of 13:02 BST, Thursday, 09 April, GlaxoSmithKline plc share price is 1,604.75p.

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