Sector Screener: two FTSE 100 stocks with long-term investment potential

Stock market investors may understandably be concerned about the global economy’s near-term outlook. After all, increasing levels of protectionism have the potential to act as a drag on the world’s GDP growth rate. When combined with above-target inflation in the US, eurozone and the UK, which could delay the prospect of further monetary policy easing, it is unsurprising that stock market investors may be seeking to reduce risk in their portfolio.

• Invest with ii: Top UK Shares | Share Prices Today | Open a Trading Account

The problem with such a strategy, though, is that it can lead to lower potential returns. While defensive shares, such as those in the utility sector, may not be as affected by a tough economic period to the same extent as cyclical firms, such as retailers, they typically generate lower capital growth over the long run. Indeed, the economy’s cyclical nature means that, over a multi-year time period, companies that are dependent on its performance are likely to generate attractive returns as today’s potential challenges likely dissipate.

Long-term growth potential

Clearly, there’s no perfect solution to this problem due to the fundamental trade-off between risk and reward. However, the pharmaceuticals and biotechnology sector could provide a worthwhile “halfway house” for investors seeking companies that are relatively unaffected by the economy’s uncertain near-term prospects but still cyclical enough to benefit from its long-term growth potential.

Demand for healthcare-related products, for example, is unlikely to materially decline during a temporarily challenging period for the world economy due to their status as a staple item. Furthermore, demand could rise in the long run as a period of stronger economic growth, prompted by an eventual decline in inflation and likely further interest rate cuts across developed economies, provides governments and consumers with greater spending power.

Of course, the sector’s long-term prospects are also set to be boosted by demographic changes, with the United Nations estimating that the world’s population will grow from 8.2 billion in 2024 to 10.3 billion by the mid-2080s. This will almost inevitably increase the prevalence of a variety of illnesses and diseases, especially since the world’s population is also expected to age over the coming decades, thereby providing growth opportunities for sector incumbents as demand for a wide range of healthcare treatments increases.

• The sector Buffett’s betting on – and where to find value in it
• Ian Cowie: ‘brave’ investors can profit from this beaten-up sector

Potential threats

A combination of defensive characteristics and long-term growth potential, of course, is likely to be relatively expensive. Even though the FTSE 350 Pharmaceuticals & Biotechnology sector has lagged the wider index by around 19 percentage points over the last year, several of its members trade on high valuations.

Furthermore, the sector may be affected by an increasingly protectionist US trade policy. Although sector incumbents could move production to the US to avoid tariffs that may end up being significantly higher than for other industries, this could still equate to additional costs. A high degree of uncertainty in this regard could hold back the sector’s performance, given the size and importance of the US healthcare market.

Source ShareScope. Data at 22 September 2025. Past performance is not a guide to future performance.

Source ShareScope. Data at 22 September 2025. Past performance is not a guide to future performance.

Investment potential

From a risk/reward standpoint, however, the pharmaceuticals and biotechnology sector could offer long-term appeal. Several of its members have solid financial positions and are well placed to capitalise on continued demographic changes, as well as an upbeat long-term economic outlook as inflation falls and interest rates are further cut across developed economies.

Although valuations across the sector may be high in some cases, and it is certainly not immune from the impact of an uncertain short-term economic outlook, its members could offer good value for money on a long-term view.

Upbeat growth outlook

For example, pharmaceutical firm AstraZeneca (LSE:AZN) appears to offer investment appeal. Its focus on non-communicable diseases such as cancer means that it is well placed to benefit from a growing and ageing world population. Its latest half-year results showed that it is performing well, with revenue increasing by 11% and core earnings rising by 17% versus the same period of the previous year.

This was in line with the firm’s financial guidance, with it expecting to record a high single-digit percentage rise in revenue alongside a low double-digit percentage increase in core earnings in the current year. This rate of growth compares favourably with many UK large-cap shares that could struggle in today’s uncertain economic environment.

• ii view: AstraZeneca growth boosted by cancer drug demand
• Four top picks in a battered sector

Over the long run, meanwhile, the company anticipates that revenue will rise from around $54 billion (£40 billion) last year to $80 billion in 2030. If met, this would equate to an annualised growth rate of around 7%, which is likely to compare favourably to several companies operating in relatively cyclical sectors over the same period.

Risk/reward ratio

Of course, an improving financial performance means that AstraZeneca may be able to further increase spending on research and development (R&D). In fact, R&D spending rose by 18% in the second quarter of the current year. Although this does not guarantee the discovery of blockbuster drugs, it increases the chances that the company’s pipeline will produce further sales growth over an extended time period.

Since first being discussed in this column during September last year, the company’s share price has fallen by 3%. This represents a 15 percentage point underperformance of the FTSE 100. Yet, the firm’s shares continue to trade on a relatively high forward price-to-earnings (P/E) ratio of 16.7. And with the US being its largest market, representing 40% of sales, it arguably faces an uncertain near-term outlook as it invests in manufacturing facilities to lessen the potential impact of tariffs.

Despite this, AstraZeneca appears to offer a favourable risk/reward opportunity. Its attractive financial outlook, exposure to long-term demographic changes and rising investment in R&D mean that it could deliver an improved share price performance over the coming years.

Source ShareScope. Data as at 22 September 2025. Past performance is not a guide to future performance.

A stronger competitive position

Fellow pharmaceuticals and biotechnology sector member Haleon (LSE:HLN) also appears to offer long-term investment appeal. The consumer healthcare company, which owns brands such as Zovirax, Aquafresh and Panadol, is well placed to benefit from an improving consumer outlook as inflation likely falls and further interest rate cuts potentially lead to an increase in spending power.

Of course, the company has struggled of late due in part to a squeeze on disposable incomes amid persistent above-target inflation and tight monetary policy. This resulted in the company downgrading its revenue guidance for the full year. It now expects to deliver a rise in organic revenue of 3.5%, versus a previous range of 4%-6%.

• Stockwatch: why I’m changing my view on this blue-chip share
• Sign up to our free newsletter for investment ideas, latest news and award-winning analysis

However, it anticipates that organic operating profits will grow at a high single-digit percentage pace in the current year as it makes further progress on cost reductions. Indeed, its operating profit margin rose by 140 basis points to 22.7% in the first half of the current year. This suggests its competitive position is improving, with a wide range of popular brands indicating that it has substantial pricing power.

Sound finances

With a net debt-to-equity ratio of 49%, Haleon has a solid financial position through which to overcome potential near-term economic uncertainty. Moreover, its net interest costs were amply covered over nine times by operating profits in the first half of the current year.

Since first being discussed in this column during September last year, the company’s share price has declined by 12% and underperformed the FTSE 100 by 24 percentage points.

Despite this, it trades on a forward PE ratio of 18.5. While this is relatively rich, the stock appears to offer good value for money on a long-term view. Its strong competitive position, sound balance sheet and scope to deliver attractive profit growth amid improving operating conditions suggest it offers investment potential.

Robert Stephens is a freelance contributor and not a direct employee of interactive investor.