GlaxoSmithKline shares: why I’m not buying

GlaxoSmithKline has been popular with investors for decades. Despite this, Dan Peeke is wary of investing in the pharmaceutical giant.

| 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.

Since being founded in 2000, GlaxoSmithKline (LSE:GSK) has expanded to become the sixth-largest pharmaceutical company in the world, according to Forbes. It also has the fourth-largest market cap in the London Stock Exchange at £81bn. Many of my colleagues at The Motley Fool believe this is just the start of its recovery and are keen to invest in GlaxoSmithKline shares. I can understand why.

The case for GlaxoSmithKline shares

Cliff D’Arcy has been invested in the company for three decades. Despite his long-standing disappointment with GlaxoSmithKline shares – it is down £1 on its price 25 years ago – he is hanging on thanks to the potentially promising involvement of activist hedge fund Elliott Management.

Inflation Is Coming

Inflation is out of control, and people are running scared. But right now there’s one thing we believe Investors should avoid doing at all costs… and that’s doing nothing. That’s why we’ve put together a special report that uncovers 3 of our top UK and US share ideas to try and best hedge against inflation… and better still, we’re giving it away completely FREE today!

Click here to claim your copy now!

Elliott’s aggressive activist involvement should encourage the company to increase its value. This should, in turn, increase the worth of its shares. The level of confidence displayed by the hedge fund through a nine-figure investment should hopefully lead to good things.  

On top of this, GlaxoSmithKline shares have risen by more than 12% in the last two months. It also currently boasts a dividend yield of about 6%. One could conclude that now is a great time to buy a cheap stake in a huge company.  

Why I’m not keen

As mentioned, its long-term performance has been pretty terrible. Many investors remaining from the last century are currently sitting on a loss. Even with Elliott on board, if the company hasn’t been able to grow in twenty-five years, there are certainly no guarantees now.

It also missed out on the chance to develop its own Covid-19 vaccine. This was a big factor in the recovery of other FTSE 100 pharma companies like AstraZeneca (LSE:AZN). Its low last March was £62.21, with its price currently up 23% to £76.93. GlaxoSmithKline shares hit £13.74 in March 2020 and have dropped by 3% since then.

With the current focus on Covid-19, I’m more inclined to follow the recovery of the companies working in that field.

The pandemic also reduced revenue from sales of non-Covid-19 vaccines by 32% as they were put on the backburner. It was even hit with a 19% drop in over-the-counter sales as more common illnesses became less prominent thanks to social distancing. This led to an 18% drop in revenue in Q1 of 2021 in comparison to the same period in 2021.

GlaxoSmithKline shares aren’t benefitting from other issues within the company either. Bintrafusp alfa – a cancer drug – failed an important trial in January, and a promising partnership with Sanofi has been hit with more delays.

Even GSK’s dividend is probably going to be cut. The firm plans to split in two in order to focus on consumer health in one division, and on HIV, vaccines, and pharmaceuticals in the other. This split would likely mean that it would no longer reach its current dividend yield.

For these reasons, I’ll be avoiding GlaxoSmithKline shares for the time being. As mentioned above, though, there are many factors to reconsider once the uncertainty of Covid-19 is a distant memory. 

Is this little-known company the next ‘Monster’ IPO?

Right now, this ‘screaming BUY’ stock is trading at a steep discount from its IPO price, but it looks like the sky is the limit in the years ahead.

Because this North American company is the clear leader in its field which is estimated to be worth US$261 BILLION by 2025.

The Motley Fool UK analyst team has just published a comprehensive report that shows you exactly why we believe it has so much upside potential.

But I warn you, you’ll need to act quickly, given how fast this ‘Monster IPO’ is already moving.

Click here to see how you can get a copy of this report for yourself today

Dan Peeke has no position in any of the shares mentioned. The Motley Fool UK 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.

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 considered, so you should consider taking independent financial advice.

More on Investing Articles

Cogs turning against each other
Investing Articles

3 top investment trusts to buy right now

Investment trusts offer a wide range of options for investors. And in troubled times, they provide some safety through diversification…

Read more »

pensive bearded business man sitting on chair looking out of the window
Investing Articles

Why hasn’t the FTSE 100 crashed in 2022?

The catastrophic events of 2022 have left investors around the globe fearing the worst for stock markets. And some have…

Read more »

Trader on video call from his home office
Investing Articles

2 inflation-resistant FTSE 100 stocks to buy today

Soaring inflation could dent my returns if I don't take care. Here are two top inflation-resistant FTSE 100 stocks I'd…

Read more »

Tabletop model of a bear sat on desk in front of monitors showing stock charts
Investing Articles

Why a bear market is an investor’s best friend

A bear market can certainly be scary. But any investor tempted to sell might benefit by looking at Warren Buffett's…

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

The Rolls-Royce share price could be stuck below £1 for a while. Should I buy?

The Rolls-Royce share price has been trading at penny stock levels since April. Could the stock be a bargain at…

Read more »

Young brown woman delighted with what she sees on her screen
Investing Articles

I’m aiming to make £45,000 in passive income with UK shares and never work again!

Investing regularly in UK shares can generate a substantial passive income over the long run. Zaven Boyrazian demonstrates how.

Read more »

Portrait of construction engineers working on building site together
Investing Articles

Down 30%, are CRH shares a screaming buy?

The CRH share price has slumped this year. Roland Head asks if this overlooked FTSE 100 share could be a…

Read more »

Shot of a senior man drinking coffee and looking thoughtfully out of a window
Investing Articles

UK shares: the good, the bad, and the ugly

Not every stock is a bargain just because it’s cheaper than it was a few months ago.

Read more »