With interest rates remaining at historic lows (and looking as though they could remain there for a while), stocks with relatively high yields have become increasingly popular. For instance, GlaxoSmithKline (LSE: GSK) (NYSE: GSK.US) currently yields 5.2% and, despite allegations of bribery, has been a popular choice for investors seeking an income. However, there’s more to GlaxoSmithKline than just a high yield.
A Superb Pipeline
Although many of its pharmaceutical peers are struggling to come to terms with the impact of patent expiries on key drugs and the inevitable generic competition that follows, GlaxoSmithKline has been able to overcome such problems through having a strong and robust pipeline of new drugs. For instance, the company outlined at the start of 2013 six drugs that were in late-stage development and which it felt were key to the future profitability of the company. Five of the six drugs were approved during the course of the year, which is highly positive for the business and shows it has the potential to continue to deliver top-line growth in future.
Increased Specialisation
GlaxoSmithKline has in recent years decided to specialise in pharmaceuticals and, specifically, in researching and developing new drugs. To this end, it has disposed of consumer goods interests (notably the sale of brands Ribena and Lucozade) so as to allocate more resources to the area where it feels it can maximise profitability for shareholders. This refocus could have a positive impact on the bottom-line over the medium to long-term.
Great Value
As mentioned, GlaxoSmithKline has been the subject of bribery investigations and they have caused share price weakness in recent months. Indeed, shares are down 3% during the course of the year, with the FTSE 100 down 2% year-to-date.
The positive aspect of this is that the stock now trades on a price to earnings (P/E) ratio of just 13.9. Although this is higher than the FTSE 100’s P/E of 13.3, the potential that GlaxoSmithKline offers through its attractive pipeline of new drugs, as well as increased specialisation in what is already a highly successful segment for the firm, means that it appears to be a price worth paying.
And if that isn’t enough, it’s a great income stock, too.
