The Motley Fool

Why GlaxoSmithKline plc is the only pharma stock I’d ever own

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.

The appeal of investing in pharmaceutical stocks is obvious: patent protections that last for years, sky-high margins that more than recoup the expense of drug development and, for many drugs, huge addressable markets the world over. On the flip side, investing in pharma stocks can also go horribly wrong for shareholders. This is due to the hit-or-miss and incredibly expensive and time-consuming process of getting drugs to market entailing R&D, clinical trials and regulatory approval.

This is exactly why GlaxoSmithKline (LSE: GSK) is the only pharma stock I’d ever own. Unlike peers such as Shire or AstraZeneca, which are pureplay pharma companies with all the upside and downside that entails, GSK offers exposure to the benefits of the sector, while cushioning the drawbacks with profitable, steady-as-she-goes divisions selling vaccines and consumer healthcare staples such as toothpaste and pain relief tablets.

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic… and with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times.

Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…

We’re sharing the names in a special FREE investing report that you can download today. And if you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio.

Click here to claim your free copy now!

In H1 2017, these non-pharma products accounted for 42% of group revenue and were actually growing quite nicely. Vaccines revenue was up 23% year-on-year (y/y) and consumer healthcare sales up 13% y/y at actual exchange rates, which were helped considerably by the weak pound.

On top of the steady growth from these divisions, GSK investors also gain access to the company’s array of top-notch pharma products. The company’s respiratory treatments brought in £3.4bn in sales in H1 and are growing nicely, while new HIV treatments were going gangbusters with sales up 32% y/y to £2.1bn.

The combination of steady growth from the non-pharma products with the potential of new pharma blockbusters has proven to be a winning combination, with group sales up 14% y/y in H1 at actual exchange rates and 4% on a constant currency basis. The company’s management team is also putting an increased emphasis on increasing profitability, which is paying off already with adjusted operating margins rising to 27.6% in H1.

Furthermore, with its shares trading at a sedate 13.5 times forward earnings while kicking off a safely-covered 5.3% dividend yield, GSK is priced as a value stock while offering considerable long-term growth potential that only adds to my interest in this relatively safe pharma pick.

A high-risk, high-reward option?

One pureplay pharma stock that exemplifies the roller coaster ride investors can be in for is Vernalis (LSE: VER). The company has spent heavily in recent quarters in preparation for launching its first cough and cold treatments in the massive US market. In the year to June, investments in a large sales staff were beginning to bear fruit with American revenue rising from £1.1m to £2.1m y/y.

Unfortunately, even though the volume of prescriptions for its drugs in the US is rising rapidly, the revenue has yet to translate into bumper profits. Indeed, during the year, pre-tax losses rose to £21.6m from £17.1m in 2016, reflecting both operating expansion into the States and pressure from generics on a European partner’s product sales. For the time being this isn’t a huge worry as the £61.3m of cash on hand at the end of June will cover several years of expansion.

However, while the growth prospects for its American sales are high, investing in a £100m market cap, heavily lossmaking pharmaceutical company is not for risk-averse investor or those like me who don’t know the ins and outs of the drugs and their market like the back of their hand.

One Killer Stock For The Cybersecurity Surge

Cybersecurity is surging, with experts predicting that the cybersecurity market will reach US$366 billion by 2028more than double what it is today!

And with that kind of growth, this North American company stands to be the biggest winner.

Because their patented “self-repairing” technology is changing the cybersecurity landscape as we know it…

We think it has the potential to become the next famous tech success story.

In fact, we think it could become as big… or even BIGGER than Shopify.

Click here to see how you can uncover the name of this North American stock that’s taking over Silicon Valley, one device at a time…

Ian Pierce has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. The Motley Fool UK has recommended AstraZeneca and Shire. 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.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.