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The Best Reason To Buy GlaxoSmithKline plc

gskWhy might you consider buying GlaxoSmithKline (LSE: GSK) (NYSE: GSK.US)?

For one thing, it wasn’t hit as hard by the “patent cliff” loss of protection on some of its key drugs as rival AstraZeneca.

Robust

That’s partly because Glaxo has always been better at looking for alternative biotechnological approaches in addition to blockbuster drugs — and it has a successful record of finding and buying up promising new companies.

So EPS is holding up, with a not-too-dreadful 15% fall forecast this year followed by a 6% rebound next year.

And the conventional drugs market is actually doing pretty well, too. At first-half time this year, sales in the key area of HIV were up 13%, with vaccines up 5% — and the firm’s experimental ebola vaccine is looking promising.

Pipeline

The pipeline is impressive, too, with 40 candidates in late stage development, and the company reckons around 30 in R&D “have potential to be first in class in areas such as respiratory, immuno-inflammation, epigenetics and cardiovascular“.

Glaxo has been selling off its lower-margin consumer businesses — it used to own the Ribena and Lucozade brands, for example — in order to focus on its core strength of drug research. And that seems sensible.

Dividends

Glaxo is also pretty hot as a dividend payer. Over the past five years, yields have averaged around 5% and have generally been adequately covered, with inflation-beating year-on-year growth. Forecasts suggest 5.6% this year and 5.8% next year.

In a way, GlaxoSmithKline is where AstraZeneca wants to be.

What about the share price? You might be disappointed if you bought 12 months ago, as you’d now be sitting on a 12% drop to 1,434p while the FTSE 100 has gained 4%.

Modest valuation

But that makes the shares cheaper now, and you can snap them up on a forward P/E of 15.2, dropping to 14.3 on 2015 expectations.  That’s only a little above the FTSE average, and with much better dividends.

In the short term, the strength of sterling has impacted cash flow — but judging by chief executive Sir Andrew Witty’s comments at interim time, the only real effect is likely to be a pause in the company’s share repurchase programme.

And Sir Andrew did also tell us that “we remain confident in GSK’s medium and long-term growth prospects and in our strategy to generate sustainable sales growth“.

The best reason?

So, what’s the overriding reason for my GlaxoSmithKline bullishness? Well, for once I don’t actually have one, and my best reason for buying is — all of the above.

But don’t take my word for it, of course — do your own research and make up your own mind.

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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has recommended GlaxoSmithKline. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.