The Motley Fool

Bribery Probe Makes Me More Bullish On GlaxoSmithKline plc

GlaxoSmithKline (LSE: GSK) (NYSE: GSK.US) has had a tough few months, with the Chinese bribery investigation causing at least a degree of share-price weakness.

However, recent news that the investigation is to be widened to potentially include other pharmaceutical companies should make investors feel slightly more relaxed about the situation in what is a key market for the company.

Claim your FREE copy of The Motley Fool’s Bear Market Survival Guide.

Global stock markets may be reeling from the coronavirus, but you don’t have to face this down market alone. Help yourself to a FREE copy of The Motley Fool’s Bear Market Survival Guide and discover the five steps you can take right now to try and bolster your portfolio… including how you can aim to turn today’s market uncertainty to your advantage. Click here to claim your FREE copy now!

Although the bribery news is not particularly encouraging, it does show investors in GlaxoSmithKline that the company’s alleged practices were not unique and that they may have been part of an industry-wide problem in China.

In any case, it means that market sentiment, while perhaps unlikely to improve in the short run (or at least until we hear more about the investigation), should be better than it has been for GlaxoSmithKline relative to its peers.

In other words, the market should not punish GlaxoSmithKline quite as much as it has in recent months.

With this is mind, I’m thinking of buying more shares in the company for three main reasons.

Firstly, with interest rates being so low and likely to stay low for a good while yet, I’m concerned about the effects of inflation. So, a yield of 4.7% is extremely attractive and offers a return above and beyond the current rate of inflation.

(Furthermore, dividends per share are expected to increase by around 5% per annum over the next two years.)

Secondly, GlaxoSmithKline has a very strong pipeline of treatments.

Indeed, 2013 has seen positive developments on FDA approvals and things appear to be progressing well for a number of products in the company’s labs. Were it not for the Chinese bribery investigation, GlaxoSmithKline may have enjoyed a relatively strong year in terms of share-price growth.

Thirdly, I’m impressed by the company’s strategy. It recently sold off the Ribena and Lucozade brands and, in my view, seems focused on the most lucrative opportunities and isn’t afraid to reallocate capital in pursuit of more profitable endeavours.

So, a high yield, sa trong pipeline of drugs and a sound company strategy are the key reasons why I’m bullish on GlaxoSmithKline. Indeed, the bribery probe makes shares even more attractive, meaning I’m keener than ever to add more of them to my portfolio.

There’s a ‘double agent’ hiding in the FTSE… we recommend you buy it!

Don’t miss our special stock presentation.

It contains details of a UK-listed company our Motley Fool UK analysts are extremely enthusiastic about.

They think it’s offering an incredible opportunity to grow your wealth over the long term – at its current price – regardless of what happens in the wider market.

That’s why they’re referring to it as the FTSE’s ‘double agent’.

Because they believe it’s working both with the market… And against it.

To find out why we think you should add it to your portfolio today…

Click here to read our presentation.

> Peter owns shares in GlaxoSmithKline. The Motley Fool has recommended shares in GlaxoSmithKline.