Sector Screener: two stocks to consider amid market turmoil

Recent events in the Middle East have caused significant concern among stock market investors. Indeed, the FTSE 350 index has slumped by 5% since the start of March as investors react to a severe spike in geopolitical risks and economic uncertainty.

In the short run, it would be unsurprising if the stock market experienced further elevated volatility given the fluidity of the situation and the potential for it to deteriorate.

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As a result, defensive industries such as the FTSE 350 Pharmaceuticals and Biotechnology sector could hold relative appeal. It contains well-known firms such as AstraZeneca (LSE:AZN) and GSK (LSE:GSK) and is likely to be less affected by any negative economic fallout from conflict in the Middle East and elsewhere.

After all, its performance is less closely correlated to the rate of economic growth than many other sectors, in the short term at least, given that medical treatments are typically viewed as a staple item by consumers, so offer a relatively consistent demand profile.

This should mean that the share prices of sector incumbents are less volatile than those of cyclical firms which are more exposed to the possible effects of potentially higher-than-expected inflation caused by a spike in energy prices, the prospect of a more constrained monetary policy than anticipated and, ultimately, the potential for a less upbeat global economic outlook than previously forecast.

Long-term growth potential

Of course, the pharmaceuticals and biotechnology sector offers far more than just defensive appeal during an uncertain economic and geopolitical period. The industry is well placed to benefit from longstanding global demographic changes, namely a growing and ageing world population, that are expected to persist over the coming years.

Indeed, according to the United Nations, the world’s population is expected to increase by 2.1 billion people over the next 60 years to stand at 10.3 billion by the mid-2080s. Additionally, the number of people aged 60 or over is set to rise from 1.2 billion to 2.1 billion between 2025 and 2050.

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A larger number of people and a higher proportion of older individuals are highly likely to result in an increase in the incidences of non-communicable diseases. They cannot be passed from one individual to another and include cancer, heart disease and diabetes.

For example, the number of new cases of cancer diagnosed in 2050 is forecast to be 75% higher than the 2022 level of 20 million. Alongside prospective growth in other non-communicable diseases, this should equate to growing demand for a range of medical treatments over the coming years that acts as a catalyst on the financial performance of pharma and biotech firms.

Source ShareScope. Data at 9 March 2026. Past performance is not a guide to future performance.

Possible risks

Clearly, the FTSE 350 Pharmaceuticals and Biotechnology sector is not without risk. While it offers defensive characteristics that could prove highly beneficial in the current economic and geopolitical climate, a prolonged and severe global economic downturn could cause affordability challenges among governments and consumers that lead to lower-than-expected demand for medical treatments.

Other risks include ongoing uncertainty regarding the imposition of tariffs on the sector, the potential for drug pipelines among industry incumbents to disappoint versus expectations, as well as elevated market valuations following the FTSE 350 index’s rise over recent months that may equate to a lack of capital growth potential.

Therefore, it is crucial for investors to diversify across sector incumbents that have solid financial positions and robust pipelines which increase their chances of developing blockbuster drugs in the long run. It is also important to avoid overpaying for any stock, in terms of failing to obtain a margin of safety, to benefit from a favourable risk/reward opportunity.

Source ShareScope. Data at 9 March 2026. Past performance is not a guide to future performance.

GSK

While GSK’s share price has surged 33% higher over the past year, the FTSE 350 Pharmaceuticals and Biotechnology sector member continues to trade on a relatively low valuation. Its price/earnings (PE) ratio, for example, stands at 11.4 versus an earnings multiple of 14.1 for the FTSE 100 index. This suggests the company’s shares are undervalued given its growth potential.

Indeed, the company’s earnings are forecast to rise at an annualised rate of 7% over the next two financial years. When combined with a dividend yield of 3.4%, this indicates that even without an upward rerating, the company’s shares could realistically deliver a double-digit annual total return over the coming years.

On a longer-term view, GSK appears to be well placed to capitalise on favourable industry conditions. Its financial position, for instance, appears to be sound. It has a net debt-to-equity ratio of 90%, while net interest costs were covered 14.9 times by operating profits in its most recent financial year.

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A solid financial position means the firm can invest heavily in its pipeline of new drugs. In its latest financial year, for example, it increased the percentage of revenue spent on core research and development (R&D) from 19.2% to 20.1%. When combined with a 7% increase in revenue, this meant that core R&D spending rose by 11% in total.

A sound balance sheet also allows the company to make acquisitions to further catalyse its financial prospects. Since the start of the calendar year, for example, it has announced two acquisitions totalling $3.15 billion (£2.36 billion). The firm’s sound finances further mean it can continue with a £2 billion share buyback programme announced in 2024, which is around 70% complete, to take advantage of its previously mentioned low market valuation.

As per the wider sector, of course, GSK’s share price could prove to be volatile over the short run as elevated geopolitical and economic risks persist. However, with a solid financial position, a wide margin of safety and growth potential over the coming years, the stock appears to offer an upbeat long-term outlook.

AstraZeneca

Fellow drug sector member AstraZeneca also appears to offer an attractive risk/reward opportunity on a long-term view. The company’s bottom line is forecast to rise at an annualised rate of over 12% in the next two financial years, having delivered annualised earnings per share growth of a similar pace over the previous two years.

This suggests that it offers good value for money despite the stock trading on a relatively lofty earnings multiple of 21.2 following a share price rise of 19% over the past year. And with the firm having a robust pipeline of new drugs, with the results of over 20 Phase 3 trial readouts expected this year, it appears to be in a strong position to capitalise on growing demand for its products.

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In the long run, the company’s solid balance sheet means it is well placed to invest in key therapy areas such as oncology through rising R&D expenditure, which increased by 4% last year, as well as via acquisitions. For example, its net debt-to-equity ratio currently stands at a relatively modest 49%, while the firm’s net interest cover amounted to 10.3 in its latest financial year.

As with GSK, AstraZeneca’s share price could experience heightened volatility in the short run as geopolitical risks including conflict in the Middle East and the potential for tariffs play out. But with the company having inherent defensive characteristics, the financial means to invest for long-term growth and a bottom line that is set to maintain its recent double-digit growth rate over the medium term, it appears to offer investment potential.

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