Britain-based buyback bets

by David Fried, editor The Byyback Letter

Our recommendations center on a collection of stocks that we believe will outperform the market. The Buyback Premium Portfolio is beating the S&P 500 by more than 73% since its inception in 2000.

Our new recommendations in this portfolio include two United Kingdom-based companies: AstraZeneca PLC (AZN) and National Grid PLC (NGG).

National Grid manages the electricity network on Long Island, providing power to over one million LIPA customers. It is the largest distributor of natural gas in the northeastern U.S., serving more than 3 million customers in New York, Massachusetts and Rhode Island.

In Great Britain, the company delivers gas and electricity across the country, with a monopoly on the U.K.'s gas pipelines and electricity wires.

The U.K./U.S. split of total group revenue is about 50/50, which means that investors are essentially buying into two companies, since each operates under a different set of regulators.

Since the current wrath of Nemo, following the wrath of Hurricane Sandy a few months ago, electric utilities have had a hard time of it with repairs and restoration of power.

However, analysts are lauding NGG and its global diversification for a consistent cash flow, which has meant a healthy 4%-6% yield of late. Shares gained 7% over the past year. Management has reduced shares outstanding by 12.5% in the last 12 months.

Global biopharmaceutical company AstraZeneca operates in more than 100 countries, and its medicines are used by millions of patients worldwide.   

Patent expirations have been taking their toll on sales of some of Big Pharma’s biggest blockbuster drugs lately, putting pharmaceutical firms on the defensive as they try to boost drugs in the development pipeline to prevent revenue losses as patients turn to generics.  

For example, AZN had schizophrenia drug Seroquel come out of patent protection in March, and Nexium and Crestor will follow in 2014 and 2016. AZN is said to have lots of new drugs in its pipeline and plenty already in the market to be earning cash right now.

Many of AstraZeneca’s drugs focus on cardiovascular disorders, such as diabetes, and respiratory issues, such as asthma and COPD, but the company also manufactures oncology and neuroscience drugs.

Analysts praise the company in multiple areas, such as its largely solid financial position with reasonable debt levels by most measures, attractive valuation levels, expanding profit margins, increase in stock price during the past year and notable return on equity.  

AstraZeneca has a market cap of $60.32 billion, with a P/E ratio of 6.6, below the S&P 500 P/E ratio of 17.7. Management has reduced shares outstanding by 8.3% in the last 12 months.

Learn more about this financial newsletter at David Fried's The Buyback Letter.

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