Why I Think GlaxoSmithKline Is So Much More Than Just an Income Stock

LONDON -- With interest rates being at historic lows, stocks such as GlaxoSmithKline  (LSE: GSK  ) (NYSE: GSK  ) have offered a remedy for income-seeking investors.

Indeed, the shares currently yield an impressive 4.4% despite rising by more than 30% in the last three years alone. Clearly, it is understandable why the shares usually form a key part of many investors' portfolios.

However, pigeonholing Glaxo as being little more than a source of income is, in my view, a tad unfair.

Of course, we all know the familiar story that the developed world has an ageing population, which will require treatments and health care in future on a larger scale than it currently does. This situation undoubtedly presents an opportunity for health care companies such as Glaxo.

However, the potential for share-price gains also exists over a much shorter investment horizon.

Unlike stable mate AstraZeneca, Glaxo has successfully managed its portfolio of patented blockbuster products. Indeed, it seems to have avoided a so-called patent cliff -- where old patents expire, there are no new products to replace them, and revenue then declines significantly.

This year alone, Glaxo is hoping to gain regulatory approval for a handful of potentially blockbuster treatments, with the latest positive news coming at the end of May when approval was obtained for two of the company's medicines to treat advanced melanoma in patients with certain gene mutations.

Of course, approvals are not guaranteed but it appears as though the company is, in sporting terminology, throwing a lot of darts so that it has a good chance of hitting the bull's-eye.

In addition, the shares currently trade on a P/E of 14.3 and offer fairly brisk earnings-per-share growth of around 6.5% per annum.

Although Glaxo's shares trade on a higher multiple than peers such as AstraZeneca and the market as a whole, I believe the potential for the company to deliver positive news flow means the shares remain attractive at the current price of 1,670 pence.

Even if the above is not enough to get your pulse racing, the shares sit at No. 19 in the top yielders of the FTSE 100 index. Buy them for an income, yes. Just don't think that's all you could be getting!

Let me finish by adding that if you already hold Glaxo shares and are looking for an alternative growth opportunity in the FTSE 350, this exclusive report reviews The Motley Fool's top growth share for 2013.

Simply click here for the report -- it's completely free!


Read/Post Comments (0) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2500220, ~/Articles/ArticleHandler.aspx, 12/19/2014 4:22:37 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement