3 Reasons Why GlaxoSmithKline plc Is Ahead Of The Game

It’s been a mixed start to 2014 for GlaxoSmithKline (LSE: GSK) (NYSE: GSK.US). The pharmaceutical stock has outperformed the FTSE 100, with the former up 3% year-to-date and the latter down around 1% over the same time period. However, GlaxoSmithKline has been dogged by continued allegations of bribery, which has undoubtedly held shares back to some degree. Despite this, the company seems to be ahead of many of its pharmaceutical rivals. Here’s why.

A Great Pipeline

While many of its peers are going through extremely challenging times, owing to patent expiry on many of their blockbuster drugs, GlaxoSmithKline is continuing to churn out huge potential in its pipeline to replace the drugs that it will lose patent protection on in future.

gskIndeed, the success of its pipeline was clear to see last year when five of the six drugs that it stated were key for the long-term success of the business were approved by regulators. Although peak sales for the drugs will take time to come through, it bodes well for the medium to long-term outlook for the company and shows that GlaxoSmithKline is unlikely to suffer from the effects of patent expiry to the same degree as many of its rivals.

A Highly Focused Strategy

While many of its peers were attempting to diversify and smooth out the notoriously volatile earnings profile of a pharmaceutical company, GlaxoSmithKline continued to focus on pharmaceuticals. To aid this, it sold off interests in consumer goods companies such as Ribena and Lucozade and, recently, agreed to sell its oncology division to Novartis for around £9.4 billion, again highlighting that GlaxoSmithKline is seeking evermore specialisation in what it does. This narrow focus should help the business in delivering a strong pipeline of drugs in future.

A Great Yield And Valuation

Despite all of this, GlaxoSmithKline remains attractively priced. Certainly, the main reason for this is bribery allegations, with market sentiment being hit in recent months by this factor. However, even with this factored in, a yield of 4.9% and a price to earnings (P/E) ratio of 14.7 appear to be too low when the aforementioned pipeline and strong strategy are taken into account. With the FTSE 100 offering a yield of 3.5% and trading on a P/E of 13.3, GlaxoSmithKline looks like it is still ahead of the game.


Of course, GlaxoSmithKline isn't the only company that appears to be ahead of the game. That's why The Motley Fool has written a free and without obligation guide called 5 Shares You Can Retire On.

Indeed, these 5 companies contain an attractive mix of growing dividends and interesting growth prospects. They could help to maximise your portfolio's returns in 2014 and make it an even better year for your investments.

Click here to take a look.

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