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Why I think these 2 FTSE 100 stocks have huge upside

The Motley Fool logo The Motley Fool 9/18/2020 Jay Yao
a close up of a toy: Pills spilling out of a prescription pot © Provided by The Motley Fool Pills spilling out of a prescription pot

In terms of performance, the FTSE 100 hasn’t done very well, declining almost 20% year to date at the time of writing.

Meanwhile, FTSE 100 component GlaxoSmithKline (LSE: GSK) has fallen 15% year to date and AstraZeneca (LSE: AZN) has increased around 12% year to date.

One reason for the FTSE 100 underperforming is Covid-19. Due to the coronavirus outbreak, many businesses have been harmed as economic activity has decreased.

Covid-19 has also been a reason why AstraZeneca has outperformed GlaxoSmithKline.

Although GlaxoSmithKline also has a vaccine candidate for Covid-19, it isn’t frequently mentioned as among the frontrunners like AstraZeneca’s collaboration with Oxford has been.

Despite the disparities between the two leading healthcare companies, I nevertheless think there is huge upside in both. Here’s why.

Speed of innovation

Due to Covid-19, there has been a lot of emphasis on creating a vaccine.

Not only has the coronavirus outbreak led to many deaths but it has also hurt the economy. It’s a double whammy that the UK could ill afford that has sent the FTSE 100 down substantially year to date.

Despite the urgency, however, the rate to a potential coronavirus vaccine has been unprecedented. Few people thought it could be possible to create a safe and effective vaccine so soon.

Before 2020, most vaccines took several years to reach the market.

With the potential vaccine for Covid-19, however, the time to market could be under one year (from when the outbreak really started in the West) given current expectations.

If approved, the fast rate to a coronavirus vaccine approval is really bullish for future scientific breakthroughs.

If Big Pharma can find a safe and effective vaccine for Covid-19 in record time, there is reason to believe it can find successful solutions for other urgent and big markets within a reasonable amount of time in the future, too.

If FTSE 100 components AstraZeneca and GlaxoSmithKline find solutions to big market problems faster than expected, it could be a huge win for not only patients but also investors.

The markets for cancer, cardiovascular, and other major ailment drugs are massive. If companies make potential drugs addressing the issues more effectively sooner, their growth rates could outperform. With faster growth could come higher valuations.

More goodwill

Even if future growth remains around the same as expectations, I think there is upside to FTSE 100 stocks AstraZeneca and GlaxoSmithKline due to another factor.

If a Covid-19 vaccine is developed, Big Pharma is now a potential saviour. Lives will be saved. Jobs will be created as our economy normalises. 

As a result of helping develop a vaccine, Big Pharma could win more goodwill from governments and citizens around the world. With more goodwill, regulators might not be as tough on Big Pharma as before.

With less regulatory headwinds, I think Big Pharma valuations could increase even if their growth or profit prospects remain the same due to less perceived risk.

Foolish conclusion

I think FTSE 100 stocks AstraZeneca and GlaxoSmithKline stocks have huge upside in the future due to the potential for the acceleration of tech advancements and healthcare breakthroughs, and the potential for more goodwill, which could help with valuations.

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More reading

Jay Yao has no position in any of the shares mentioned.  The Motley Fool UK has recommended GlaxoSmithKline. 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.

The post Why I think these 2 FTSE 100 stocks have huge upside appeared first on The Motley Fool UK.


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