Why GlaxoSmithKline plc Should Be A Candidate For Your 2014 ISA

GlaxoSmithKline plc (LON: GSK) should be rewarding shareholders for years to come.

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.

GlaxoSmithKlineSo GlaxoSmithKline (LSE: GSK) (NYSE: GSK.US) has struggled a bit with the so-called patent cliff in recent years with the loss of exclusivity on some key drugs, has it?

When it comes to picking investments for this year’s new ISA allowance of £11,760, I say “So what?

Decades of cash

The reason, you see, is that for me an ISA investment is for life — and I’m far more interested in how a company is going to be shaping up over 10, 20 or even 30 years than in short-term trifles like this.

Of course, we can’t be sure any company is going to be doing well so far in the future. But with a market capitalisation of more than £80bn and as the largest pharmaceuticals company listed on the FTSE by far (AstraZeneca is £30bn behind), GlaxoSmithKline surely has a much better chance than smaller companies in more risky businesses.

Beaten by technology?

What’s that, you say? The days of blockbuster drugs companies are numbered and they’ll be eclipsed by modern biotechnology upstarts? Well, who do you think has the big money and will be making irresistible buyout offers to these newcomers when they start to look promising?

That’s right, it’s the big firms like GlaxoSmithKline. In fact, we can already see the start of it, as Glaxo has been on the acquisition trail for some time now.

And, you know, even the shorter term looks pretty reasonable for Glaxo right now.

Not expensive

We’ve seen erratic earnings per share (EPS) over the past few years and EPS should be flat in 2014, but there’s modest growth of 8% forecast for 2015. That puts the shares on a price-to-earnings ratio of around 14-15 over the next couple of years — in line with the FTSE’s long-term average of about 14, and a bit below the current forward average of 17.

And when we look at Glaxo’s dividends, which provide a yield of around 5% when the FTSE 100 average stands at 3%, the shares are looking attractively-priced to me.

So how much would £1,000 invested in Glaxo be worth in 20 years time?

The value of compounding

_ISA1If we assume the share price will grow in line with the FTSE’s long-term average of around 5% per year and that we reinvest a dividend yield of 5% in more shares each year… we’d be looking at £6,700 after two decades!

To put that into perspective, the same cash in a savings account offering a typical 1.7% would net you a measly £1,400.

In fact, I like GlaxoSmithKline so much I have it in the Fool’s Beginners’ Portfolio, which is run very much with the same long-term strategy that I advocate for ISA investors.

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.

> Alan does not own any shares in GlaxoSmithKline or AstraZeneca. The Motley Fool has recommended shares in GlaxoSmithKline.

More on Investing Articles

Growth Shares

Growth stock YouGov just fell 46%. Time to buy?

YouGov’s share price just fell from 820p to 440p after a poor trading update. Is now a good time to…

Read more »

Investing Articles

2 mouthwatering FTSE growth stocks I’d buy and hold for 10 years

Growth stocks purchased today could be the gateway to many years of capital growth and returns. Here are two picks…

Read more »

Investing Articles

Can the IAG share price really be as dirt cheap as it looks?

While most shares have recovered since the Covid days, the IAG share price is staying stuck to rock bottom. Surely…

Read more »

Investing Articles

BAE Systems shares are flying! Have I missed the boat?

Sumayya Mansoor looks into whether or not BAE Systems shares are still a good buy for her portfolio after the…

Read more »

British flag, Big Ben, Houses of Parliament and British flag composition
Investing Articles

1 heavyweight FTSE 100 share I’d buy as London retakes its crown

Some Footsie firms are extremely large, but that doesn't mean they couldn't get even bigger. Here's one such FTSE 100…

Read more »

Investing Articles

I’d buy 5,127 National Grid shares to generate £250 of monthly passive income

With a dividend yield of 6.5%, Muhammad Cheema takes a look at how National Grid shares can generate a healthy…

Read more »

Investing Articles

The FTSE 100’s newest member looks like a no-brainer to me!

This Fool explains why she sees the newest member of the FTSE 100 as a great opportunity after its recent…

Read more »

Investing Articles

Empty Stocks and Shares ISA? Here’s how I’d start earning a second income from scratch

Like the thought of earning extra cash tax free? Our writer explains what he'd do to begin earning passive income…

Read more »