Surging inflation has battered global markets this year. And despite pharmaceutical stocks tending to fare well in times like this, GSK (LSE: GSK) shares are down nearly 12% in 2022.
This fall has caught my eye. I think it presents a great opportunity to snag some cheap shares as we head into 2023 and to hold them for the long term. Here’s why.
GSK share price history
Before we get into it, let’s take a look at how the GSK share price has performed in recent times.
Inflation has peaked above 10% in both the UK and the US this year, meaning markets have taken a beating, including GSK. At this time last year, a share in the business would have set me back £16.24. Today, at the time of writing, it would cost me just £14.32.
Across the past five years, the stock has returned over 8% to shareholders, a significantly better return than that of the FTSE 100.
Is it time to buy?
So, is now the time to buy GSK? I believe so.
Its main attraction for me is the strong results the business has posted recently. For example, in its Q3 update, it announced sales growth of 9% to £7.8bn, fuelled by record sales of its shingles vaccine, Shingrix. On top of this, GSK also managed to reduce its net debt by £3.7bn in Q3 year on year to just over £18bn, while free cash flow came in at £723m.
With the macroeconomic headwinds that we’ve been facing, these are encouraging signs. As a result, GSK raised its full-year forecasts, with sales growth now expected to sit between 8% and 10%.
The business has also made great strides in streamlining its operations, predominantly through the Haleon demerger. The move will allow GSK to focus on developing vaccines and medicines. And with over 60 currently in development, this could boost profits in times ahead.
What also draws me to the stock is its dividend yield. At 7%, this isn’t inflation-beating. However, it does sit comfortably above the average of its FTSE 100 peers. With inflation predicted to persist in 2023, the cash generated from these dividends will come in handy.
The price-to-earnings ratio of around four also signals to me that the stock may be currently undervalued.
GSK concerns
The largest concern I have with GSK is rising inflation. As it continues to persist into 2023, this could see costs spike.
There’s also the persistent issue of potential legal action. The firm recently had a legal ruling thrown out after it was suggested that its Zantac heartburn treatment causes cancer. And while the outcome of this ruling was positive (at least for now), it highlights the potential risks and complications that come with investing in businesses such as GSK.
The verdict
Should I have some spare cash, I’ll be looking to pick up GSK shares as we head into the New Year. The business has posted some strong results during a tough year. And with its meaty dividend yield and low valuation, I like the look of the stock.
