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GlaxoSmithKline plc: Why It’s My Top Stock Pick For 2015

Do you love statistics? They’re not everyone’s idea of a good time, but occasionally I come across some really interesting ones. Take this one for instance: every hour, GlaxoSmithKline (LSE: GSK) (NYSE: GSK.US) spends over £300,000 researching new medicines and treatments.

I’m going to go into why this is such a crucial statistic, but first I want to explain why GlaxoSmithKline is my stock pick for 2015.

The numbers make sense

It’s probably going to stretch the friendship but I want to give you a few more numbers. These are good numbers, though — the kind that tell you that the company behind the numbers is fit enough for your hard-earned money.

From an earnings perspective, GlaxoSmithKline is a sound investment. It has a net profit margin of 18%. From an operating efficiency perspective, it also holds its own with a return on assets of over 10%. The pharmaceuticals company is also in a solid debt position, with a debt-to-equity ratio of 0.60. For those looking to add just a hint of spice to their portfolio, GlaxoSmithKline has earnings per share growth of 21%.

For this Fool, though, it’s essentially a buy-and-hold company. Its price-to-earnings ratio is 11.8, it’s got a beta of just 0.56, and a dividend yield of 6% (the pharmaceutical company’s dividend yield has also been incredibly consistent over the past several years). It’s what you might call an attractive ‘defensive’ play.

It’s a lifeboat in stormy seas

No one — not even us clever Fools — can tell you what’s going to happen on the market next year. What I can tell you, though, is that it’s likely to be a volatile year on the markets. Why? Well, because the British economic recovery hasn’t been ‘locked in’ yet; Eurozone policy makers are still flirting with the idea of quantitative easing (so a reasonable recovery in that region is still a long way off); Japan is in recession and Russia will likely go into recession, too; neither consumers nor businesses have become particularly confident over the past 12 months; and commodities prices are in retreat. To add to the mix, there’s still a lot of cheap money floating around being sucked into both the debt and equity markets… so yes, I can’t imagine 2015 will be a particularly smooth ride for investors.

This Fool believes the stocks that have a more reliable earnings stream — like healthcare stocks — will come out ahead in 2015. Normally I would lump consumer staples stocks in this category, but I’m not confident the supermarkets know what they’re doing just yet in terms of strategy. If you’re still unsure about the best stock picks within healthcare, take heart from the fact that the emerging middle class of China will provide GSK with extra-ordinary growth opportunities in coming years. Indeed, other emerging markets around the world should also provide the potential for growth as incomes slowly rise.

Not an easy road, but one worth travelling

GSK has dealt with its fair share of corporate headaches during 2013 and 2014 (especially in China) but I believe the company has a credible strategy moving forward. Part of that strategy has been a heavy investment in research and development. So what is it doing with all that money? For starters it’s built up ViiV Healthcare. This is a strategically important company that’s devoted to HIV drugs. It may float on the stock exchange in 2015. Most of the investment in R&D is there to keep GSK ahead of the pack. It’s the very lifeblood of the drugs maker because without it, it risks being run over by another company with better ideas and products.

There are other challenges, too. Earlier this year the company announced it will have to find savings of around £1 billion. That will likely result in extensive job cuts and a reduction in research facilities in the United States… but this is par for the course for a company like this. Sales of Advair have simply fallen flat so the company needs a marketing push to get back on its feet.

There are no guarantees in this investing business but GlaxoSmithKline has some degree of staying power. That counts for a lot in the current financial climate.

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David Taylor 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.