Breaking News
Get 40% Off 0
👀 Reveal Warren Buffett's stock picks that are beating the S&P 500 by +174.3% Get 40% Off

The Bullish Case For GlaxoSmithKline At Current Levels

By Haris AnwarStock MarketsOct 04, 2022 01:45PM ET
www.investing.com/analysis/the-bullish-case-for-glaxosmithkline-at-current-levels-200630654
The Bullish Case For GlaxoSmithKline At Current Levels
By Haris Anwar   |  Oct 04, 2022 01:45PM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
 
GSK
-0.22%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
GSK
-0.61%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
GBP/USD
-0.12%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
UK100
+0.22%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
HLN
+6.27%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
  • U.K.’s pharmaceutical stocks offer a buying opportunity in the current economic upheaval, given their defensive nature and the vast global footprint
  • GSK has become a leaner and more-focused company after its recent restructuring
  • Haleon’s spinoff allows GSK to sharpen its focus on developing new medicines and give it more financial firepower to seek growth opportunities

It’s been an interesting year for U.K. investors. After outperforming all other developed markets until October, the benchmark FTSE 100 took a sharp downturn last week when investors shunned the nation’s securities after new Prime Minister Liz Truss announced a mini-budget that doubted the country’s financial credibility.

The broad-based market rout sent risk assets, bonds, and the British pound tumbling last week.

GBP/USD Weekly Chart
GBP/USD Weekly Chart

The sell-off in the nation’s currency was so steep that it prompted Truss to reverse the plan, leading to a rebound in the FTSE in the last few days.

However, the volatility and the favorable exchange rate have opened many opportunities for foreign investors looking for quality stocks.

For such investors, U.K. pharmaceutical stocks offer one area to focus on, given their defensive nature and vast global footprint. Global pharma companies will also benefit from the U.K.’s currency weakness, as most of their sales are in U.S. dollars.

I particularly like GlaxoSmithKline (NYSE:GSK), which has lost about a third of its value during the past three months, a downward move that ballooned its dividend yield to more than 5%.

GSK Weekly Chart
GSK Weekly Chart

Here is why I believe GSK makes a good buy-on-the-dip candidate for value-seeking investors in this uncertain environment:

Business Restructuring

London-headquartered GSK has underperformed in recent years due to a series of challenges, including oncology clinical failures and missing out on the lucrative market for the first COVID-19 vaccines, despite being one of the world’s major vaccine makers.

However, it is now a much leaner and more-focused company after its massive restructuring under the leadership of Emma Walmsley.

In July, the pharma giant completed the spinoff of its consumer-healthcare business, Haleon (NYSE:HLN), the maker of Panadol painkillers and Sensodyne toothpaste.

As part of the spinoff, GSK received a special dividend of around 7 billion pounds, significantly reducing the company’s debt load while giving it more flexibility to invest in its drug pipeline.

Healthy Pipeline

Last summer, the company agreed to buy Affinivax Inc. for as much as $3.3 billion, adding possible next-generation vaccines. That deal was followed by its takeover of Sierra Oncology, a maker of targeted therapies for rare forms of cancer, in April.

The new GSK, with a significant focus on the biopharmaceutical and vaccines businesses, has a strong pipeline of drugs that includes vaccines against the respiratory syncytial virus, for which there’s no approved shot yet.

Furthermore, revenue for Shingrix, a shot against shingles that is one of Glaxo’s bestselling products, is expected to double in the next five years.

This is perhaps the reason that many investing models used by InvestingPro indicate that there is significant upside potential in GSK stock.

GSK Fair Value
GSK Fair Value

Source: InvestingPro

One of the major motivations to invest in any pharma stock is to seek income stability due to the sector’s safe-haven status during times of distress. After the Haleon spinoff, I believe GSK’s payout is much safer, with more upside potential.

In the second quarter’s earnings report, the first since the completion of its restructuring, GSK reported a 13% jump in sales year over year, with EPS growth of 6%.

GSK also said its adjusted operating profit margin rose 7%. The company also boosted its outlook for the full year as improving revenues and margins propelled the company to beat expectations for the second quarter.

GSK’s quarterly dividend, which it cut this year from $0.63 to $0.341 because of the spinoff, has become attractive after the recent sell-off. Yielding more than 5% at the time of writing, GSK stock is offering a good entry point to lock in this juicy yield.

Bottom Line

After its recent restructuring, GlaxoSmithKline has become a story driven by growth. GSK’s global footprint and its large portfolio of drug patents shield its revenue from Britain’s current economic upheaval. The recent sell-off in its stock, therefore, offers an opportunity to lock in its higher dividend yield.

Disclosure: At the time of writing, the author doesn’t own GSK. The views expressed in this article are solely the opinion of the author and should not be taken as investment advice.

The Bullish Case For GlaxoSmithKline At Current Levels
 

Related Articles

The Bullish Case For GlaxoSmithKline At Current Levels

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.
  • Any comment you publish, together with your investing.com profile, will be public on investing.com and may be indexed and available through third party search engines, such as Google.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email