Stocks for the Long Run: GlaxoSmithKline vs. the FTSE 100

LONDON -- If the long-run return on the market is 9.4% (as researchers at Credit Suisse say), investing in shares should be a no-brainer. Somehow, however, all too often our portfolios don't seem to reflect that attractive performance.

This is partly because that 9.4% number is an average derived from 100 years of data. Picking various time periods within that 100 years gives very different outcomes -- and the market almost never actually returns 9.4% in any single year.

Needless to say, unless you're holding a market tracker, your portfolio could have dramatically different results than what the market experiences. If you own a disproportionate amount of winning shares, your returns could be significantly better than the market. On the other hand...

In this series of articles, I'm looking at how individual shares have performed against the FTSE 100 (INDEX: ^FTSE  ) during the past 10 years. Today, I'm assessing pharmaceuticals giant GlaxoSmithKline (LSE: GSK.L  ) (NYSE: GSK.US  ) .

Over the last decade, GlaxoSmithKline's performance has trailed that of the FTSE 100.

Source: S&P Capital IQ.

Perhaps not surprisingly, GlaxoSmithKline's performance over the past decade has been similar to that of AstraZeneca's, returning an annual average of 5.2%. Both of the pharma giants have failed to keep pace with the FTSE 100's average return of 7.2%.

Unlike Astra, however, Glaxo has consistently been priced above the market. Apparently, investors have had more confidence in the company's pipeline and perhaps appreciated the diversification offered by Glaxo's vaccine and non-prescription health care products.

Sources: S&P Capital IQ and Thomson Reuters.

Unlike Astra, Glaxo has already gone through most of its patent cliff -- its high-priced blockbuster drugs have already lost their patent protection and now face heavy competition from cheaper generics -- and moved on to the next generation of big sellers. At the same time, Glaxo has been working to build its presence in emerging markets where prices may be lower but growth is significantly higher.

So, is GlaxoSmithKline a superior investment compared to AstraZeneca or the FTSE 100? The market seems to like it better than Astra, but Glaxo still offers a 5.5% dividend yield so could be attractive to income seekers.

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Nate Weisshaar does not own shares of any company mentioned in this article. The Motley Fool has a disclosure policy.
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