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Chasingyieldhasbecomeacrowdedtrade。

Manydividendstocksarenowovervalued。

Forexample,onathree-yeartimehorizon,whataninvestormayearninincomecouldbemorethanoffsetincapitallosses。

Worsestill,ifthepayoutsarebasedonconditionsstayingbenign(eg,Libor–seepage48–atlessthan1%),thenthereisapotentialdoublewhammyofdividendcutsfurtherdowntheline。

WhatdoesthismeanforAstraZeneca?

Iadvisedbuyingthehealthcarestockat£20。

60inFebruary2008,basedonthelong-termattractionsofageingpopulations,growthinemergingmarketsandcontinuedmedicaladvances。

Thefirmspecialisesincancer,cardiovascular,gastrointestinal,infection,neuroscienceandrespiratorytreatments,andhasasubstantialpresenceinbiologics。

Fromafirstlookatits2009figures,unsuspectingpuntersmightrateitasaclearbuy。

Thesharesyieldajuicy5%,tradeonapaltryp/eratioof7。

2andofferdownsideprotectionagainstfurthersterlingdeclines,giventhegroupsoverseasexposure。

AstraZeneca(LSE:AZN),ratedaBUYbyRBS

Butdontbefooled。

AstraZenecaisabouttohitalooming$16bnpatentcliff。

Morethan50%ofitsturnover,includingitsfourbiggestfranchises–Nexium(stomachulcers),Crestor(cholesterol),Symbicort(asthma)andSeroquel(schizophrenia)–willhavecomeoffpatentbytheendof2014。

Andbecausetheseprescriptionmedicinesgeneratelucrativemargins,Isuspectmorethan75%oftheorganisationsoperatingprofits(Ebita)couldbitethedusttoo。

Thegroupistryingtoreplacetheselostrevenuesbylaunchingnewtreatmentsasfastaspossibleviaacombinationofaggressivein-licensingdealsandin-houseresearchanddevelopment。

YettheholeissowidethatIdontbelievetheshortfallwillbefilledintime。

Ifyouwindtheclockforwardfiveyears–assumingthatapowerfultailwindofnewcompoundsarediscovered,producingorganicgrowthof,say,10%ayear(ortwiceglobalGDP)–thenIwouldstillonlyestimate2015salesandunderlyingEPSat$28bnand$4persharerespectively。

Onthisbasis–usinga14-timesearningsmultipleanddiscountingbackat10%–thesharesarewortharound£22。

50each,or23%belowtodayslevels。

Soifoneboughtthestocknowandheldforfiveyears,thetotalequityreturn(assumingthedividendremainedflat)wouldntbemuchbetterthanzero,oraround–10%inrealterms。

Idtakeprofitsnowandeitherrecycletheproceedsintobetteropportunities,orkeepthecashfluidandawaitanothercorrection。

TheresaslimchanceAstraZenecacouldfallpreytoalargerrival(suchasNovartis),butforme,attheselevels,thenumbersforatakeoversimplywouldntstackup。

First-quarterresultsaredueouton29April。

Recommendation:SELLat£29。

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