I see interesting times ahead for the GSK (LSE: GSK) share price. GlaxoSmithKline is one of the largest UK biotech stocks trading on the London Stock Exchange. It’s a global giant, with an impressive £1.7bn free cash flow in Q1 alone.

But its share price has been losing ground against its competitors, barely moving over the last five years. It’s not even kept up with inflation.

Could that be about to change as it goes through what it describes as “the most significant corporate change for GSK in the last 20 years”?

Change ahead for the GSK share price?

For some time, the company has been seen to be lagging behind its peers. The last decade has seen it fall from being the third-largest pharmaceutical company in the world down to 14th, based on its market cap.

CEO Emma Walmsley’s response has been the slow progression of plans to split the company in two. And next month should finally see the spin-off of its Consumer Healthcare division into a separate company called Haleon.

But will the estimated £2.4bn cost of the split, one of the most expensive ever, be worth it?

Can GSK benefit from the deal?

The deal will give the company a one-off pocketful of £7bn in cash to spend. That’s seen as fundamental for developing its drugs pipeline, especially in areas such as cancer where it’s noticeably lagging competitors.

This is something that should have a positive impact on its share price. But that’s only if it’s able to transform itself from a global giant into the nimble biotech-focused company it says it wants to be.

In particular, it wants its R&D teams to focus on the science of the immune system, use of human genetics and advanced technologies.

That all sounds wonderful and exciting on paper – but I’m politely curious (read a little sceptical) as to whether reality will match its ambitions. 

Can the ‘new’ GSK compete in the biotech world?

With the pandemic bringing vaccine development sharply into the limelight and increased competition, it’s probably fair to say the biotech world is a tougher place to win these days.

The average business spend for companies developing new drugs may have fallen sharply from a high of $2.8bn to $1.3bn, but that’s still a huge chunk of cash to bet on a single product.

That’s why having a diverse pipeline of drugs is essential for GSK (just like my Foolish investing approach in shares). If one drug fails to perform as hoped, others may plug the revenue gap.

Right now, its focus appears to be on buying its way out of its pipeline problem, such as its recent £1.5bn purchase of Sierra Oncology. Or there’s the £2.1bn upfront payment to Affinivax, a clinical stage vaccine developer.

That’s an expensive approach and not one I’d be keen on seeing it adopt as its main strategy.

The market may well want to see tangible proof of its R&D investments paying off before it rewards GSK with a higher share price.

So to answer my question in the title, I don’t think the fact of the demerger alone will drive the price higher. For now, I’ll hold off on buying GSK shares. But I’ll watch with interest to see if it takes advantage of its post-demerger opportunities.

The post After its £2.4bn demerger, can the GSK share price blossom? appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Michelle Freeman holds shares in GlaxoSmthKline. 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.

Activist Investment

The main reason behind the partial recovery for GlaxoSmithKline shares is that activist hedge fund Elliott Management has opened an undisclosed stake in the firm. An activist hedge fund is an investing style that seeks to put pressure on a firm’s management to increase the value of the company, therefore increasing the value of their investment.

GlaxoSmithKline is a prime target for such investment. It has a well-established name, business plan, and manufacturing network. However, its share price has been prone to large fluctuations as the firm has struggled with debt problems for several years, with liabilities largely outweighing receivables.  I believe Elliott could really capitalise on helping Glaxo to streamline its current assets, adding big value for investors, and hopefully stabilising the share price for the future.

Though the exact figure for the investment is undisclosed, it’s estimated to be in the billions. An investment of this magnitude signifies Elliott believes it can make some serious money with Glaxo. And the only way it will do this is if it can make the share price rise, which is good news for investors. 

Bear case for GlaxoSmithKline shares

2020 was a year defined by the pandemic. Many pharmaceutical shares skyrocketed as a product of vaccination development. However, GlaxoSmithKline confirmed in February 2021 that it would not be continuing its own Covid-19 vaccination development. The firm has announced it will assist in the manufacturing of 60m Novovax vaccines. Yet GlaxoSmithKline shares are still trading below their March 2020 low. This is discouraging considering the recoveries that many other pharma stocks like Moderna and AstraZeneca have made since their March 2020 lows. 

Another consideration for investors is how the company’s plan to split may affect dividend payments. It’s separating its BioPharma and Consumer Healthcare businesses in 2022. GlaxoSmithKline currently pays a dividend of 5.9%, double the FTSE 100 average. However, it has signaled in the past that the combined yield from the two businesses may not add up to the current yield. This reduces GlaxoSmithKline’s viability as a solid income share.

What’s next for GSK

An activist hedge fund like Elliott seems to have been a lifeline for GlaxoSmithKline in recent weeks. It could really galvanise Glaxo to drive faster growth. However, the lack of an owned coronavirus vaccine and the split of the firm into two entities is unlikely to help share prices any time soon.

Yet I’m optimistic for the future. I think the current GSK share price does represent a great opportunity to get a hold of cheap shares. I think Elliott’s involvement could really shake things up and push share prices higher in the future. All risks considered, I like the look of this cheap FTSE 100 share for my portfolio.

The post Should I buy GlaxoSmithKline shares at the current price? appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Dylan Hood owns shares of AstraZeneca. The Motley Fool UK has recommended GlaxoSmithKline and Moderna Inc. 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.

My retirement plan is two-pronged: first, I want to invest in a high-growth stock that I can buy now and watch the gains tick over. And I also want a safe dividend-payer that can provide passive income and security.

So as I ponder that future deckchair on a porch somewhere with an iced tea in hand, I’m thinking of JD Sports Fashion (LSE: JD) and GlaxoSmithKline (LSE: GSK). 

JD Sports Fashion

My “wildcard” bet is a bit riskier than the average retirement stock. Retail is undergoing a significant shift to e-commerce and competition is fierce. However, JD Sports’ share price has soared more than 75% in the past year, from 512p to 907p.

This kind of growth intrigues me, so I began digging into this FTSE 100 company’s financials. 2020 revenue rose just under 1% to £6.16bn, despite temporary store closures. Even with increased Covid-19 costs, it managed to score a pre-tax profit of £421.3m — down just 5% year-on-year. What excites me for the future is that 55% of the company’s total sales worldwide came from the US and mainland Europe in 2020. This shows a strong international presence that can be built upon. I think JD can become one of the top sports retailers on the planet, and has plenty of growth in it yet.

I still have some concerns though. While the risks of it are waning, I’m worried about the impact of a prolonged pandemic. Or worse, another pandemic in the future — I’m not planning on retiring any time soon, after all. An increase in direct-to-consumer sales from major brands could also hurt JD. With retail e-commerce accelerating rapidly, consumers may simply go straight to Nike or Adidas rather than shop at JD. Hopefully, there will be enough market share to go around though and JD did do every well in e-commerce in its latest year. 

GlaxoSmithKline 

Despite being one of the FTSE 100’s worst-performing shares over a year, GlaxoSmithKline is on my retirement watch list too. At its current price of 1,350p, this pharmaceutical giant is down more than 10% in the past 12 months. The FTSE 100 member is a dividend-paying stock, with a yield of 5.7%, which means passive income in my later years.

While GSK missed out on last year’s pharma rally, this was a one-off in my opinion. its dip was partly due to its regular vaccines business suffering during lockdown as people stayed away from doctors’ surgeries. The group’s turnaround is making progress. Sales of new pharmaceuticals rose by 12% to £2.5bn in Q3, accounting for 30% of all revenue. Glaxo also remained very profitable, with an operating margin of 22%. As the sixth-largest pharma company in the world, I believe GSK can remain at the top and provide my retirement with a passive income stream.

GSK is far from risk-free though, with many changes on the horizon. It plans to split in two in 2022 (the two ‘new’ businesses will focus on BioPharma and Consumer Healthcare), which may dent earnings. Its dividend is also set to fall for the first time in 15 years, which could hurt my retirement plans. This corporate restructuring could have mixed results and may lead to worse returns.

The post Why I’m buying these 2 FTSE 100 shares for retirement appeared first on The Twelfth Magpie.

More reading

• Still stubbornly in pennies, will the JD Sports share price hit £1 again?
• Your ISA allowance is waiting! 3 dirt-cheap stocks to consider right now
• See what £12,000 in explosive JD Sports shares 1 month ago is worth today
• 2 FTSE 100 bargain stocks to buy in June?

Jamie Adams has no position in any of the shares mentioned. 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.

If there is one business activity that public opinion doesn’t like right now, it’s profiteering. Happily, this is not what GlaxoSmithKlin is doing.

I think GlaxoSmithKline shares look tempting. Not specifically because GSK may help us defeat the virus, but because of what this announcement tells us about the company.

CEO Emma Walmsley has said the company won’t profit from any resulting vaccine during the pandemic. Instead it would use the revenue to fund a ramp-up in manufacturing.

This tells us the company is well placed for the world that will emerge once this crisis is finally over.

The deal

The arrangement entails combining the Sanofi’s DNA technology, which it uses to manufacture flu vaccines, with GSK’s expertise in adjuvant technology. This technology leads to a much stronger immune system reaction, creating more antibodies.

The adjuvant technology means a much lower dosage is required for a vaccine to be effective. As a result, vaccine production can be increased more rapidly.

It is extremely unusual for pharmaceutical companies to collaborate in this way. Walmsley called it “unprecedented“. She also referred to the remarkable speed with which the two companies plan to mass produce a vaccine. They expect the vaccine to be available in the second half of next year. It normally takes many years, even as long as a decade, to be able to mass produce a new vaccine.

That’s modern technology for you. If the Covid-19 pandemic had occurred a few years ago, there would have been no hope of developing a vaccine so fast.

Post Covid-19

I believe that once this crisis is finally at an end, the world will seem like a different place with very different priorities.

There will also be much greater awareness of the dangers from disease. Covid-19 is the third major coronavirus this century. The pressures created by climate change and over-population is some regions means there will probably be more.

Furthermore, with antibiotics losing their effectiveness, I expect to see renewed efforts to develop new antibiotics. GlaxoSmithKline is proving that its outstanding expertise will be invaluable in this new era.

Foolish bottom line

Glaxo’s share price has fallen around 14% from this year’s peak price. In general, I think the markets are underestimating the long-term economic effects of this crisis. GlaxoSmithKline, however, is one of the few companies that I think is well poised for the post Covid-19 era. Recent falls in the share price push its forward price-to-earnings ratio down to around 13. At the current share price, forecast dividends are 5.3%. However, I don’t think the share price is reflective of this upside potential.

The post GlaxoSmithKline teams up with Sanofi for a Covid-19 vaccine. Are its shares worth considering? appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Michael Baxter has no position in any of the shares 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.