Should I Buy GlaxoSmithKline?

It's time to go shopping for shares again, but where to start? Insurance titan Aviva  (LSE: AV.L  ) which looks ripe for a rerating? Dividend behemoth Vodafone  (LSE: VOD.L  ) ? Or maybe out-of-favor fashion giant Burberry  (LSE: BRBY.L  ) ?

There are plenty of great stocks to choose from, and I'm enjoying doing some window shopping. So here's the question I'm asking right now. Should I buy GlaxoSmithKline  (LSE: GSK.L  ) (NYSE: GSK  ) ?

The caring stock
In some respects, it's a daft question. I already own pharma phatboy GlaxoSmithKline, the U.K.'s biggest pharmaceutical company. I've taken the medicine twice, in August 2009 and again in August 2010.

I'm up around 25% overall, which isn't exactly shoot-the-lights-out performance, but then, pharmaceutical stocks aren't supposed to shoot anything.

They're supposed to soothe, nurture, and care. They're also designed to smear you with the regular balm of nutritious dividends. That's good for your long-term wealth, and probably your skin tone as well.

Glaxo currently yields 4.9%, which is pretty healthy. Only 11 FTSE 100 (UKX) faves pay more, including SSE  (LSE: SSE.L  ) at 5.9%, BAE Systems  (LSE: BA.L  ) at 5.8% and National Grid  (LSE: NG.L  ) also at 5.8%.

Glaxo's yield is also covered 1.6 times, and looks reasonably solid.

Sniffs and snuffles
What's more, Glaxo is that little bit cheaper than one month ago. It has fallen from its 52-week high of £15.07 to £14.29 at the time of writing, a modest drop of 5%.

There's a reason for this, of course.

Despite its solid, defensive reputation, Glaxo can't defy the downturn altogether. The pharma giant had forecast rosy-cheeked sales growth this year, but was starting to feel peaky by the end of the second quarter, after catching a cold in Europe.

Total sales fell 4% to £6.5 billion, with an 8% drop in Europe. Sales volumes actually rose 1%, but cash-strapped European governments were cutting the price they paid for treatments.

In the first six months of 2012, Glaxo's half-year profits fell 15% in total. If Europe's health worsens, Glaxo's profits won't be immune.

Witty wisdom
Glaxo investors typically have robust constitutions, and will have no problem toughing this out. They still believe in chief executive Sir Andrew Witty's strategy of moving away from "white pills and western markets" toward consumer health care and emerging markets, where there are great gains to be made.

The share now trades on a modest P/E of around 12 times earnings.

Pharma phun
So should I buy Glaxo? Should you? The answer partly depends on how robust you feel right now. If you're feeling frisky and risky, you might be tempted by a sexy cyclical stock instead.

But, if your nerves are getting you down, and the dismal returns on cash are making you feel dizzy, Glaxo could prove a warm and snuggly comfort blanket.

If you're suffering from visions of a eurozone crisis, a U.S. fiscal double dip, and a Chinese hard landing, then now could be the time to take some defensive medicine, and Glaxo has been dispensing that for years.

If you want a stock to make you healthy, wealthy, and wise, then you can't do much better than Glaxo. It's a firm favorite, and a definite long-term hold. If you haven't got any, further dips would make it a buy as well.

Yield to the yield
Glaxo is the second-largest holding in dividend ace Neil Woodford's Invesco Perpetual Income fund, taking up a whopping 8% of its portfolio.

If you would like to know the names of eight top income shares held by Britain's super investor, why not download our special report by Motley Fool analysts? The report is completely free and shows where Woodford believes the best high-yield stocks are to be found today. Availability is strictly limited, so download it now.

Are you looking to profit as a long-term investor? "10 Steps to Making a Million in the Market" is the latest Motley Fool guide to help Britain invest. Better. We urge you to read the report today -- while it's still free and available. 

 Further Motley Fool investment opportunities:

Harvey Jones holds GlaxoSmithKline, Aviva, Vodafone, and Invesco Perpetual Income. He doesn't own any other shares mentioned in this article. The Motley Fool has recommended shares in Burberry. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


Read/Post Comments (1) | 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.

  • Report this Comment On September 14, 2012, at 5:38 AM, popsranola wrote:

    Should I buy Glaxosmithkline........Of course.......Good Dividend sure Income plus capital safety and capital growth.........What more you need.....Remember capita safety means glaxo ..........

Add your comment.

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: 2015721, ~/Articles/ArticleHandler.aspx, 10/2/2014 12:27:00 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...

Today's Market

updated 3 hours ago Sponsored by:
DOW 16,804.71 -238.19 -1.40%
S&P 500 1,946.16 -26.13 -1.32%
NASD 4,422.09 -71.31 -1.59%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/1/2014 4:06 PM
GSK $45.90 Down -0.07 -0.15%
GlaxoSmithKline CAPS Rating: ****

Advertisement