The FTSE 100 index was in a good place in today’s trading, up by over 1% at the close. This, of course, was visible in its constituent stocks as well. But three gainers among these stand out for me, in particular, as stocks that offer much long-term potential to my portfolio
AstraZeneca grows through acquisitions
One of these is the pharmaceuticals company AstraZeneca (LSE: AZN), which really needs no introduction, especially since the pandemic. Beside the Covid-19 vaccine, the company is known for its cancer treatments, which had shown healthy growth at the last count. The company remains firmly in expansion mode. Recently, it decided to invest $360m in a manufacturing facility in Ireland.
It is also growing through acquisitions. Last year, it acquired the US-based Alexion Pharmaceuticals, which focuses on treatments for rare diseases. It has now acquired Caelum Biosciences, which also focuses on a rare disease called AL amyloidosis that can cause organ failure. Alexion already held a minority interest in it when AstraZeneca acquired it. It has now exercised its option to acquire the remaining equity. A price of $150m will be paid for the same, with additional payments of up to $350m payments possible on achievement of milestones.
I would look out for AstraZeneca’s debt levels, though. It had already run the number up when it acquired Alexion, and now it is making more investments as well. While it is true that both the manufacturing facility and the Caelum acquisition could strengthen it financially, they could also first put it under some strain. On the whole though, I like the stock and think its prospects are positive.
Next ups guidance
Retailer Next was another FTSE 100 gainer today after it released its results for the half year to July, 2021. Its sales were up by 5.6% from 2019, the last pre-pandemic comparable period. And they have risen by 59% from 2020, because of a low base effect. Its post-tax profit was also up by 8.5%, showing a smart recovery from the pandemic. But perhaps even more significantly, it has raised its guidance for the full year. It now expects post-tax profits to be £800m, up from £764m earlier.
It has also started paying dividends recently, and going by its improved guidance, it should continue with that. Its dividend yields were muted even before the pandemic, so I expect them to be a less important aspect of buying the stock. At the same time they are a nice addition to any expected capital gains from the stock if I buy. That said, the shares are expensive and I am aware that any results disappointment could hit the share price.
Higher targets for FTSE 100’s Rentokil Initial
Pest control provider and hygienist Rentokil Initial was also one of the big gainers today, with a price increase of 2.5% so far. The impetus for this, in all likelihood, comes from its improved growth targets. It expects organic revenue growth in the medium term to be between 4% and 5%, up from 3% and 4% earlier. The company’s hygiene services made gains last year on account of Covid-19 and given the segment’s increasing significance, the company is now expanding it.
While the FTSE 100 stock is pricey, with a price-to-earnings (P/E) ratio of 41 times, I think it is still a good buy for me going by both its long-term price trajectory and its growth prospects.
Manika Premsingh owns shares of AstraZeneca and Rentokil Initial. The Motley Fool UK owns shares of and has recommended Next. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
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