The Motley Fool

Why I’m Bullish On GlaxoSmithKline plc, Interserve plc And Carillion plc

GlaxoSmithKline

Over the next two years, GlaxoSmithKline (LSE: GSK) (NYSE: GSK.US) is expected to increase its top line at a brisk pace. In fact, in 2016 it is forecast to be 9.1% higher than it was in 2014 which, after four years of decline, would be an excellent result. As such, it would be of little surprise for investor sentiment in the pharmaceutical company to improve moving forward.

In addition, the future bodes well for GlaxoSmithKline’s bottom line, too. That’s because, alongside increasing sales, the company is delivering significant efficiencies that should have a positive impact on its margins. As such, it would be of little surprise for GlaxoSmithKline’s earnings to rise at a much faster pace than its revenue, which makes its price to earnings (P/E) ratio of 17.5 seem to be a very fair price to pay at the present time.

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And, with a yield of 6% this year, GlaxoSmithKline also seems to offer excellent income potential alongside its strong growth and value prospects.

Interserve

Interserve (LSE: IRV) is a stock that often goes under the radar, with the provision of support services perhaps not being the most exciting of businesses for investors to add to their portfolios. However, its returns are very, very interesting and evidence of this can be seen in the fact that its share price has more than trebled in the last five years. Despite this, it still trades on a hugely appealing valuation, with Interserve having a P/E ratio of just 10.1.

Looking ahead, profit growth of 7% this year and 10% next year is forecast, which is above the growth rate of the wider index. As such, it is very difficult to justify such a low valuation for the company, which makes it a steal at its current share price. Furthermore, its dividend yield of 3.9% has considerable appeal – especially with the UK economy going from strength to strength and making brisk dividend increases a very realistic next step.

Carillion

Unlike Interserve, fellow support services company, Carillion (LSE: CLLN), has been a disappointment in recent years. For example, its shares have risen by just 7% during the period, with its bottom line falling in each of the last three years. And, looking, ahead, its net profit is forecast to drop by 1% this year and rise by a somewhat disappointing 4% next year.

Clearly, an improving UK economy may not be enough to push Carillion’s share price higher, but a potential catalyst is its superb income potential. For example, at the present time it yields an incredible 5.4% and, with a payout ratio of just 54%, there is considerable scope for dividend increases even if profit continues to disappoint. With interest rates set to stay low, investor sentiment in Carillion could pick up and push the company’s share price significantly higher.

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Peter Stephens owns shares of Carillion, GlaxoSmithKline, and Interserve. 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.