If the stock market recovery continues which shares will do best? Right now that’s the big question. I think one way to set oneself up for success if the market rallies from this point on, would be to invest in high-yielding shares like GlaxoSmithKline (LSE: GSK) and Vodafone (LSE: VOD).
Pharma share a big winner in a stock market recovery?
Despite Pfizer winning the race to announce the first effective vaccine for Covid-19, other pharma groups are still working on vaccines. This includes GlaxoSmithKline. GSK is involved with three potential solutions being developed by Sanofi, Medicago and Clover Pharmaceuticals.
The Sanofi/GSK vaccine has pre-orders from governments including the UK’s. The Pfizer vaccine, even with its claimed 90% effectiveness, still leaves the door open for other jabs. I think there’s still an opportunity for GSK to play its part in rescuing the world from 2020’s nightmare.
Looking longer term though, investors could benefit from the reorganisation of the business. By becoming more focused on pharmaceuticals and spinning out its consumer division, GSK should be able to put more resources into finding blockbuster drugs. This is what AstraZeneca has done well over the last five years or so. Its share price has performed far better than GSK’s as a result.
Lastly, for investors like me who are prepared to wait for GSK to improve, there’s the dividend yield, which is a very juicy 5.5%.
All in all, I think GlaxoSmithKline could be among the winners if there is a stock market recovery. The shares are cheap and high-yielding, which is what I think investors will be looking for as many growth shares have arguably become too expensive.
The high-yielding share with recovery potential
Yielding around 7%, I think Vodafone’s shares are another good option for investors. Especially those who want to create an income from dividends. The shares are well down on where they started the year so there’s potential for a major bounce-back if sentiment continues to improve.
The dividend was cut last year, making it more sustainable now, and free cash flow cover also makes the dividend more secure. The group is targeting 2.5 to 3 times net debt-to-cash profits. This also means the dividend is less likely to be cut by management, I feel.
Steps towards the sale of Vodafone’s European tower assets have continued. The telecoms group is targeting an early 2021 IPO for the newly formed Vantage Towers. This will provide cash for 5G which should bring opportunities for the group.
If Vodafone can improve its performance in European markets, for example, through selling more data and better cross-selling of services to customers, then I’d be more confident buying the shares as a long term investment. At the moment though, growth is a little on the low side. This makes the dividend the main attraction of the shares.
That said, I think the share price could be boosted in the short term by improved investor sentiment and investors looking for high yielding shares. This is making me look more closely at the share and the potential for it to bounce back.
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Andy Ross owns shares in AstraZeneca. The Motley Fool UK 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.