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Why I think this FTSE 250 stock could trash the GSK share price

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Screen of price moves in the FTSE 100
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In these tumultuous days, with once-safe stocks like banks being shunned by investors, and cryptocurrencies being all the rage with the get-rich-quick crowd, it’s lovely to see a company like GlaxoSmithKline (LSE: GSK).

What I mean by that is a reflection of the progress of Glaxo and the valuation of is shares. Earnings are back on track after those difficult few years when the company was rebuilding its drug development pipeline. We have a couple of effectively flat years for earnings forecast, but that’s fine — stability rather than rapid growth is what the FTSE 100 has traditionally been thought of as providing.

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Bread and butter

That stability has fed through to the dividend, and there’s a forecast yield of 4.7% this year. Cover at 1.4 times could be a bit stronger, but it’s also fine — and I see it as a sufficient base for growing dividends as earnings pick up further in future years. On valuation, GSK shares are on forward P/E multiples of 14.7 on this year’s forecasts, and 14.3 on 2020’s.

So what we’re looking at here is a great FTSE 100 company, on a valuation that’s pretty much bang in line with the Footsie’s long-term average, and offering a decently covered dividend that’s a bit above the index average yield (which is standing at 4.5% now).

Looking at that, you’d never get a clue the Brexit circus is in town, or that Donald Trump is waging a trade war with China, or of any of the negative stuff that’s making the daily headlines. And that’s why I reckon GlaxoSmithKline is possibly the perfect defensive long-term investment.

Meaty option

If you want to add a bit of spice to your portfolio, I reckon Genus (LSE: GNS) is a growth stock worth watching. Genus specialises in breeding genetically-modified pigs and cows, and has a worldwide market. Its shares have already gained 140% over the past five years, though the price has fallen back a little over the past year. That may well be due to a flattening off of the firm’s short-term earnings growth forecasts.

Results for the year ended 30 June showed a modest 4% rise in revenue to £488.5m, with adjusted pre-tax profit up by the same margin to £6.7m and adjusted EPS down 4% to 73.2p. While that financial performance is pleasing, I’m more interested in strategic progress for the long term right now.

Global penetration

Genus has made strong inroads into Latin America and Europe. And although its business in China was hit by the spread of African Swine Fever, I’m pleased by the resilience of the firm’s results. It’s going to continue to hold back Genus’s pig business, though, and the impact should continue into next year — but there should be some benefit from subsequent restocking.

Bovine semen volumes grew 40%, and that’s something I never expected to write when I started in this job all those years ago.

Genus shares are on a premium valuation with forward P/E multiples in the 30s, and that’s something you’ll have to be comfortable with if you go for the shares. But I reckon the share price weakness of the past year could be presenting a fresh opportunity for growth investors.

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Alan Oscroft has no position in any of the shares mentioned. 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.

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