The Investment Column: Doubts over potential blockbusters make AstraZeneca too risky to hold

Volatile Cornwell crashes out of our portfolio with profits warning; Blacks can weather the high street storm
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It did so again yesterday, alongside the announcement of two more product failures. These were potential treatments for overactive bladder and the heart disorder atrial fibrillation, which had been in the second phase of human trials which are supposed to prove whether they could be effective drugs. Now Astra won't need to splash out on large-scale Phase III trials, so it is more cents in the bank for David Brennan, who succeeds Sir Tom McKillop as chief executive at the end of the year.

Indeed, across a broad front the company is nipping and tucking, keeping costs down in sales and marketing too, but it looks as though the third-quarter figures released yesterday might mark the high point for margins.

AstraZeneca looks like a company in transition but without a vision yet as to what it might turn into. It has just two products in Phase III, a stroke drug called Cerovive and a diabetes pill called Galida, each with high scientific risks. The stock market is sceptical about their prospects, the main reason being that AstraZeneca's shares trade at a discount to the sector, and it remains unclear whether there are potential blockbusters lurking in the portfolio of Phase II drugs. There must be if the shares are to close the gap on rivals such as GlaxoSmithKline, which has twice as large a portfolio.

Cost-cutting can only take AstraZeneca so far, particularly since changes to the way drugs are purchased in the US are likely to exert yet more downward pressure on prices in the coming years. Meanwhile, the City is already looking beyond the drugs that were driving sales in the latest set of results - good growth, from products such as Seroquel for mental illness and Nexium for stomach ulcers, which added 9 per cent to third-quarter sales - because copycat rivals are preparing for their launches in a couple of years.

We said hold at 2,290p in April but the risks are growing. At 2,500p, sell.

Volatile Cornwell crashes out of our portfolio with profits warning

The Independent's portfolio of share tips for 2005 has lost Cornwell Management Consultants, which crashed through our stop-loss level with a profits warning yesterday. The company, which specialises in managing big IT projects, said that several central Government contracts took longer to be signed and longer to begin than it had envisaged. That meant many of its consultants were sitting twiddling their thumbs - never a profitable occupation.

Arbuthnot, the company's broker, has reduced its forecast for 2005 profit from £2.9m to just £2.0m. It is not the first downgrade in the company's short stock market history. At least Cornwell was able to confirm that its contract win rate, at 40 per cent of tenders, is not under pressure.

We added Cornwell to the portfolio in March, warning that it could prove volatile. We hoped for big rewards, but have lost 45 per cent of our investment. We will replace the stock next week.

Blacks can weather the high street storm

Yesterday was one of the hottest October days on record and while many of us gazed wistfully at the blue sky, wishing it was summer again, managers at Blacks Leisure, the outdoor clothes retailer, were praying for the more familiar autumnal rains to pour.

Like all retailers, the consumer slowdown has hit its trading figures, but Blacks had an added blow from the fact that this summer was one of the driest in recent years. Blacks' usually predictable sales of waterproof gear dried up. The company said yesterday that like-for-like sales for the six months ending 31 August were down 4.8 per cent.

But despite tumbling sales, Blacks, which also owns the Milletts chain, proved it will hold its nerve and not discount goods to get the tills ringing. While sales were down, gross margin was up nearly 4 percentage points. This led to a 12 per cent rise in pre-tax profits to £6.9m. Over the past few weeks, when like-for-like sales have dropped 11.8 per cent, Blacks has pulled off a rise in margins of 3 percentage points.

The good news is that despite yesterday's interloping heatwave, forecasters are predicting one of the coldest winters for many years, meaning Black's specialist range of warm outdoor wear is likely to be in high demand. At 403.5p, its shares are trading at around 12 times earnings, in line with the retail sector. Its niche position, however, means it can weather more of the high street storm than some. Keep your shares zipped up tight as the cold nights draw in. Hold.

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