If I could buy only 1 FTSE 100 share in this market crash, it’d be this

FTSE 100 company GlaxoSmithKline is firmly on this Fool’s radar!

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

In one of his wise, homespun lessons for investors, legendary investor Warren Buffett once likened shares to hamburgers. He asked this simple question:

“If you plan to eat hamburgers throughout your life and are not a cattle producer, should you wish for higher or lower prices for beef?

The billionaire ‘Oracle of Omaha’ then added: “If you expect to be a net saver during the next five years, should you hope for a higher or lower stock market during that period?”

Buyers should welcome bargain prices

The answer to both questions is that ongoing buyers of hamburgers and stocks should seek the same thing: lower prices today (and higher prices when they become sellers, of course!).

Thanks to this coronavirus crisis, share prices across the board are a lot lower than when the FTSE 100 index peaked in 2020 at 7,674.6 on 17 January. As I write on Friday afternoon, the Footsie is hovering around 5,485, down over 28% in just 10 weeks. Bad news for today’s sellers, but good news for today’s buyers, according to Buffettology.

Buy what you know

Buffett also urges investors to “buy what you know”, stick within “your circle of competence” and “never invest in a business you cannot understand.”

Hence, when I root around in the stock market’s bargain bin, I often seek out members of the blue-chip FTSE 100, as these companies are well known and analysed extensively by analysts and private investors alike.

In troubled times, buy boring businesses

In stressful times, it pays to buy shares in ‘boring’ companies – firms that are easily understood and whose business you could explain in a few words to a smart seven-year-old. Hence, my unexciting pick for today’s cautious and nervous investors is GlaxoSmithKline (LSE: GSK). Here are five reasons why I’d buy and hold this stock for the long term:

1. GSK’s core business is basic

GSK is not a sexy business. Quite simply and in its own words, GSK makes “pharmaceutical medicines, vaccines and consumer healthcare products”. Thus, during a global health crisis, its revenues and profits should survive and even thrive. Even better, the company’s origins go back all the way to 1873, so it’s endured almost 150 years of global booms and busts.

2. GSK is big – very big

With small businesses worldwide teetering on the brink, it pays to park money in the shares of big businesses. At the current share price of 1,430p, GSK’s market value is almost £72 billion, placing it in the top five by size of FTSE 100 members. Outside of the USA, that’s considered pretty big.

3. GSK’s share price is down 23% recently

GSK’s shares have fallen by almost a quarter (23%) since their 2020 peak of 1,857p. In Buffett’s terms, our burgers are now over £4 cheaper than they were on 24 January, which is a decent discount. On the other hand, they are over £1 more expensive than when they changed hands at 1,328p on 16 March.

4. GSK pays a chunky dividend

Because of its high cash dividend, GSK has long been regarded as an ‘income share’, steadily paying out quarterly cash to shareholders for decades. Although GSK’s yearly dividend has been stuck at 80p since 2016, this still equates to a dividend yield of 5.6%. However, this payout is covered only 1.2 times by earnings, so a dividend cut might happen at some point. Then again, even a 20% cut would still leave the shares yielding almost 4.5% a year.

5. I’ve owned GSK shares for decades

Finally, I first bought shares in one GSK predecessor in the 1980s, when I was an investment beginner and Glaxo was worth maybe £5 billion at most. Since then, I’ve owned GSK shares almost continuously for the past three decades and have come to know many long-serving employees. In Buffett-speak, I feel that GSK is squarely inside my circle of competence.

To sum up, for investors who prefer deep sleep to restless nights, GSK is a share to buy and tuck away. It’s way too big to ‘shoot the lights out’, but it may also be ‘too big to fail’. Meanwhile, that 5.6% dividend yield is an obvious attraction, even if GSK’s share price doesn’t go up for a long while!

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Clifff D'Arcy owns shares in GlaxoSmithKline. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »