In a year where the FTSE 100 has experienced a challenging period, GlaxoSmithKline (LSE: GSK) has been able to deliver impressive share price gains. The company’s stock price has risen by 15% since the start of the year, while the FTSE 100 is down by 7% during the same period.
Looking ahead, the stock could continue to outperform the wider index. It appears to offer a mix of growth potential, a margin of safety, and improving income prospects. Alongside another stock which reported improving performance on Friday, it could be worth buying for the long term.
The other company in question is global engineering business Morgan Advanced Materials (LSE: MGAM). It released a trading update for the first 10 months of the year, with sales during the period up 7.2% on the previous year. For the four-month period from July to October, sales increased 6.4%. Headline operating margins remain in line with those reported previously for the first half of the financial year.
The company is also on track to meet expectations for the full year. Its sales for the Thermal Products division were 7% up on the first 10 months of the previous year, benefitting from an improved performance in Asia. Meanwhile, the Carbon & Technical Ceramics division recorded sales growth of 9.2%, with growth in Electrical Carbon, Sales & Bearings, and Technical Ceramics being key drivers.
Looking ahead, Morgan Advanced Materials is expected to post a rise in earnings of 11% in the current year, followed by further growth of 9% next year. With its shares trading on a price-to-earnings growth (PEG) ratio of 1.5, they could deliver capital growth over the long run.
While the GSK share price may have risen significantly in 2018, it also continues to offer a margin of safety. The company has a price-to-earnings (P/E) ratio of 13.9 which, given its size and diversity, could indicate that it offers investment potential.
In terms of its business model, GlaxoSmithKline may become increasingly popular among investors. Given the volatility in the FTSE 100 so far this year, and the uncertainty which faces the world economy at the present time, it would be unsurprising for investors to focus on stocks which offer defensive characteristics. Since the company has a diverse range of operations that span consumer healthcare, vaccines and pharmaceuticals, it may have increasing appeal. That’s especially the case since its financial performance could be less correlated to the wider economy’s outlook than many of its index peers.
With GlaxoSmithKline having a dividend yield of 5.1%, it continues to offer an impressive income outlook. Although dividends have been frozen in recent years, a refreshed strategy could lead to an improving bottom line. This may translate into a higher dividend over the next few years, which could boost the total return potential of the stock and help it to stay ahead of the FTSE 100.
Peter Stephens owns shares of GlaxoSmithKline. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. The Motley Fool UK has recommended Morgan Advanced Materials. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.