The Tullow Oil (LSE: TLW) share price has fallen a staggering 60% year-to-date. Such a decline may attract value hunters to the stock. Indeed, shares in the oil producer are now trading at their lowest level in more than five years.
However, the company’s fundamentals are deteriorating rapidly. As such, Tullow Oil might not be able to offer as much value as the market suggests.
Tullow Oil share price
The business is facing a range of problems. A falling oil price, high levels of debt, and high operational costs are all weighing on its bottom line.
Unfortunately, it doesn’t look as if these pressures are going to disappear any time soon. The world has more oil than it knows what to do with, and demand is falling steadily as the planet moves away from hydrocarbon power sources.
This suggests the price of oil is likely to remain depressed for some time. If it remains at current levels, it’s going to be difficult for Tullow Oil to reduce its debt. That implies the company will encounter further problems with its creditors in future.
The company has been trying to reduce costs to offset these pressures. But Tullow Oil can only cut expenses so far. It needs higher oil prices to help clean up its balance sheet and, perhaps more importantly for investors, restore its dividend.
FTSE 100 income champion
On the other hand, FTSE 100 income champion GlaxoSmithKline (LSE: GSK) may have a much brighter long-term outlook than Tullow Oil.
Unlike Tullow, which relies on the oil market to set the price for its main product, Glaxo can set its own prices. This gives the company a tremendous competitive advantage over other businesses.
Indeed, recent updates from the business show it’s been able to continue to operate despite the coronavirus pandemic. Indeed, it’s maintained production guidance across many of its operations for the current year.
What’s more, demand for Glaxo products should only increase over the long term. As the world’s population continues to grow, the need for pharmaceutical products should only increase.
Also, many Western nations are having to grapple with the challenge of ageing populations. This is another factor that may support steadily rising sales growth for the pharmaceutical group over the long run. As such, Glaxo appears well-placed to overcome short-term difficulties to produce a strong total return over the coming years.
Unlike Tullow Oil, the company has impressive income credentials. The stock currently supports a dividend yield of 4.8%. That’s slightly higher than the FTSE 100 and seems highly attractive in the current interest rate environment.
As such, buying a slice of Glaxo today, and holding it over the long run as part of a diverse portfolio of shares, may be the better choice.
Rupert Hargreaves owns no share mentioned. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. 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.