GlaxoSmithKline isn’t the only pharmaceutical share I’d buy right now

Why I’m tempted by GlaxoSmithKline plc (LON: GSK) and this fast-growing pharmaceutical firm.

| More on:

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.

There’s a lot to like about gargantuan pharmaceutical company GlaxoSmithKline (LSE: GSK) and I’m attracted to the share as a long-term investment. With its market capitalisation at just over £77bn, the firm is a big player in the sector. In general, I reckon the pharmaceutical industry is a decent place to invest if you are after ‘defensive’ companies capable of generating steady and repeatable cash flows, ideal for financing reliable dividend payments.

Trading figures on the mend

GlaxoSmithKline’s trading figures wobbled a bit during the first half of this decade because of the company’s well-reported challenges regarding patent expiry. Some of its best-selling products came out of patent protection, which opened up the market to a flood of cheaper generic alternatives. Cash flow and profits declined, but earnings now seem to be back on track and growing steadily from year to year, and cash inflow has stabilised. Throughout the difficult period of the past few years, the company maintained its dividend and the shares traded in a range between 1,000p and 1,700p.

To me, today’s share price around 1,577p offers good value considering that the trading figures appear to be on the mend. At the end of July, chief executive Emma Walmsley announced a restructuring programme aimed at improving the competitiveness and efficiency of the cost base with savings delivered “primarily through supply chain optimisation and reductions in administrative costs.” Such initiatives and ongoing new product releases from the research and development pipeline look set to drive decent investor returns from here.

However, I’m also keen on international veterinary pharmaceutical business operator Dechra Pharmaceuticals (LSE: DPH), which released its full-year results today. Whichever way I look at them, the figures are good. Constant exchange rate revenue moved up almost 14% compared to last year and underlying diluted earnings per share shot up nearly 21%. Indeed, the directors underlined their confidence in the outlook by pushing up the total dividend for the year by almost 19%.

Facing off the competition

So why has the share price fallen a little over 15% today? I suspect the answer to that question can be found in the report under the heading ‘Market Changes’. According to the firm, the veterinary market “is seeing faster change than at any time in its history.” There’s increasing consolidation of veterinary practices and veterinary distributors into larger entities. These enlarged distribution businesses are selling more of their own products and, on top of that, the leading US supplier has moved onto Dechra’s ‘patch’ in the UK and mainland Europe. In a nutshell, Dechra faces more competition than it has been used to.

However, the firm’s vibrant research and development pipeline should work alongside an active acquisition programme to keep the firm competing in the market. The directors said in today’s report that the company is “well positioned” to serve the needs of the larger veterinary practice firms that are emerging alongside independent practices. Dechra has “the flexibility to respond quickly”to any ongoing changes within the distribution network.

Indeed, today’s figures are encouraging and the new trading year has started well. The directors expect the firm to “continue to outperform.” On balance, I reckon today’s share-price wobble could soon be forgotten as ongoing growth in earnings shines through in the years to come.

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.

Kevin Godbold owns shares in Dechra pharmaceuticals. 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

Is the Centrica share price a compelling value play?

I'm always on the lookout for investments that might be undervalued, but is the Centrica share price as cheap as…

Read more »

Investing Articles

Down 88% since its peak! Is this one of the best UK shares to buy now?

I see lots of potential shares to buy on the UK stock market right now, but I don't see explosive…

Read more »

Investing Articles

Should investors be looking at the Barclays share price?

The Barclays share price has been in rally mode lately, but is the best still to come for new investors?…

Read more »

Investing Articles

Here’s what Stocks & Shares ISA investors are buying today!

ISA investors are piling into these UK and US stocks. But which could be the best buy right now? Royston…

Read more »

Investing Articles

2 powerful passive income stocks investors should consider snapping up

Building a passive income stream via dividend-paying stocks is possible, according to our writer, who details two picks to take…

Read more »

Silhouette of a bull standing on top of a landscape with the sun setting behind it
Investing For Beginners

This UK stock has gained 42% since I bought it, but I think it’s still a bargain

Jon Smith outlines his reasons for thinking that a UK stock he owns has the potential to keep rallying for…

Read more »

Investing Articles

1 under-the-radar value stock I’m eyeing up for returns and growth

This Fool is looking for quality stocks at bargain prices and reckons this potentially overlooked value stock could be a…

Read more »

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Investing Articles

National Grid shares have plunged — but if I’d bought 2 years ago, would I be in profit?

National Grid shares are about 22% lower than in May, but that may just be a small blip for long-term…

Read more »