GlaxoSmithKline plc: The One Stock I Would Buy For 2015

For months, I have been yelling from the rooftops that UK pharmaceutical giant GlaxoSmithKline (LSE: GSK) (NYSE: GSK.US) is going cheap, at least by its pricey standards.

Early last month it was still trading at just over 12 times earnings, well below the 15 or 16 times it normally stands at. I reckoned a company of this quality was unlikely to stay cheap for long, and the recovery has already begun. At 1501p, the share price is up 13% since its mid-October lows. Today, it trades at 13.6 times earnings.

So Glaxo is still relatively cheap. If I was buying just one stock for 2015 and beyond, here’s why it would be my choice.

Get With The Programme

The Glaxo share price was hammered for a reason. And it wasn’t just those unseemly Chinese bribery allegations (which may still draw crunching penalties from investigators in the US and UK).

Pharmaceutical and vaccination sales in the US have fallen sharply, down 10% in Q3 to $1.27bn, and the blame has largely fallen on Glaxo’s “patients first” programme, which was designed to sever the controversial link between bonuses and sales targets.

But there are questions over whether Glaxo’s sales teams have bought into the new system, which rewards staff for their scientific knowledge rather than their ability to drive prescription growth.

Worryingly, Glaxo is looking to expand the new incentive model across its global business next year, albeit with tweaks. 

Glory Days

Glaxo has responded to sales slippage in the time-honoured way, with job cuts and a £1 billion restructuring programme, and is hoping two new lung treatments will compensate for falling US sales of inhaler Advair.

It has won some glory with “encouraging” early trials of its Ebola vaccine. And chief executive Sir Andrew Witty made waves with his announcement that Glaxo is looking to float the £15bn ViiV Healthcare businesses set up with Pfizer five years ago, with the proceeds likely to be passed to shareholders through extraordinary share buybacks.

Glaxo continues to post a strong performance in emerging markets, where populations are ageing and falling ill, as in the West. That’s now a key long-term reason to buy, especially as it seems to be forgiven in China.

Earnings per share are set to grow only a modest 1% in 2015, but that’s an improvement on this year’s 18% drop. 

The very best reason to buy Glaxo is its 5.2% yield. Even if its troubles continue into 2015, you can re-invest that for long-term growth while the share price recovery continues.

If you already have enough exposure to Glaxo, there are plenty more FTSE 100 companies paying generous dividends of 5% or 6% a year.

With interest rates set to stay low for years, that level of income is unmissable.

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Harvey Jones 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.