Surging inflation has battered global markets this year. And despite pharmaceutical stocks tending to fare well in times like this, GSK (LSE: GSK) shares are down nearly 12% in 2022.

This fall has caught my eye. I think it presents a great opportunity to snag some cheap shares as we head into 2023 and to hold them for the long term. Here’s why.

GSK share price history

Before we get into it, let’s take a look at how the GSK share price has performed in recent times.

Inflation has peaked above 10% in both the UK and the US this year, meaning markets have taken a beating, including GSK. At this time last year, a share in the business would have set me back £16.24. Today, at the time of writing, it would cost me just £14.32.

Across the past five years, the stock has returned over 8% to shareholders, a significantly better return than that of the FTSE 100.

Is it time to buy?

So, is now the time to buy GSK? I believe so.

Its main attraction for me is the strong results the business has posted recently. For example, in its Q3 update, it announced sales growth of 9% to £7.8bn, fuelled by record sales of its shingles vaccine, Shingrix. On top of this, GSK also managed to reduce its net debt by £3.7bn in Q3 year on year to just over £18bn, while free cash flow came in at £723m.

With the macroeconomic headwinds that we’ve been facing, these are encouraging signs. As a result, GSK raised its full-year forecasts, with sales growth now expected to sit between 8% and 10%.

The business has also made great strides in streamlining its operations, predominantly through the Haleon demerger. The move will allow GSK to focus on developing vaccines and medicines. And with over 60 currently in development, this could boost profits in times ahead.

What also draws me to the stock is its dividend yield. At 7%, this isn’t inflation-beating. However, it does sit comfortably above the average of its FTSE 100 peers. With inflation predicted to persist in 2023, the cash generated from these dividends will come in handy.

The price-to-earnings ratio of around four also signals to me that the stock may be currently undervalued.

GSK concerns

The largest concern I have with GSK is rising inflation. As it continues to persist into 2023, this could see costs spike.

There’s also the persistent issue of potential legal action. The firm recently had a legal ruling thrown out after it was suggested that its Zantac heartburn treatment causes cancer. And while the outcome of this ruling was positive (at least for now), it highlights the potential risks and complications that come with investing in businesses such as GSK.

The verdict

Should I have some spare cash, I’ll be looking to pick up GSK shares as we head into the New Year. The business has posted some strong results during a tough year. And with its meaty dividend yield and low valuation, I like the look of the stock.

The post Why I’d buy GSK shares in 2023 appeared first on The Twelfth Magpie.

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Charlie Keough has no position in any of the shares mentioned. The Motley Fool UK has recommended Gsk Plc and Haleon Plc. 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.

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.

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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.

The Glaxo (LSE: GSK) share price has underperformed for years, but I have always admired the FTSE 100 stock for its dividend. Now both are going south.

The Glaxo share price has gone nowhere in the last 10 years. It traded at 1,412p this day in March 2012, and trades at 1,485p today. That’s an increase of just 0.5%. In a decade. Just saying.

Glaxo share price disappoints

That wouldn’t normally worry me, because the main reason I’d buy GlaxoSmithKline is for its dividend. The £75bn pharmaceutical giant has a reputation for being one of the most reliable and rewarding income stocks on the FTSE 100.

At first glance, it still looks like it’s doing the business. The current yield is 5.39%, or roughly 10 times what I would get on instant access. The problem is that the actual dividend payment has not increased in years. Instead, it has been held at 8op a year throughout chief executive Emma Walmsley’s tenure, which began in 2017. In fact, it hasn’t increased since 2014.

Walmsley has justified this by saying the money would be better off invested in replenishing the company’s drugs pipeline. For a while, I agreed. Now I’m not so sure.

I’m beginning to wonder how well that money is being invested, if the company still cannot find some extra cash to reward loyal income-seeking shareholders. The only reason today’s yield looks good is that the Glaxo share price has done so poorly.

One thing I really like about investing in top FTSE 100 dividend stocks is my income should increase year after year as management hikes shareholder payouts. That’s particularly valuable today, as inflation skyrockets and we all struggle to keep up with the cost of living. Yet the Glaxo share price doesn’t offer me that prospect.

I don’t call that progressive

Glaxo’s yield is forecast to FALL to just 3.5% in 2023, when what management calls “the new GSK progressive dividend policy” begins. That exciting-sounding project will see the dividend rebased at just 45p per share. Thanks.

That’s a little over half what it paid eight years ago. This follows the move to hive off the New Consumer Healthcare business, which is likely to pay a further 10p per share, lifting the total payout to 55p. It could be even lower than that. The ailing Glaxo share price isn’t the only issue here.

So investors who get 80p today will get just 55p tomorrow. Management calls this progressive, but it seems to be going a long way backwards to go forwards.

Zero share price growth AND a falling dividend? That’s not for me. GlaxoSmithKline remains a great British company, but I’m not buying it today. Perhaps I’m being short-sighted. The Glaxo share price does look a bargain trading at a valuation of just 12.4 times forecast earnings.

There are positives. Last month, Glaxo posted better-than-expected Q4 earnings, as Covid-related sales hit £1.4bn. Adjusted operating profit fell, but was still a healthy £8.82bn. Management expects to generate more than £10bn worth of cash from operations by 2026, which will hopefully filter through to shareholders. However, I’ve been patient with Glaxo share price underperformance for long enough. Time for me to look elsewhere.

The post The Glaxo share price and dividend are both falling. Here’s why I’m not buying today appeared first on The Twelfth Magpie.

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• 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?
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Harvey Jones doesn't hold any of the shares mentioned in this article. 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.

GlaxoSmithKline (LSE:GSK) stock just received a major boost. After a week of dread following the news of the Omicron variant, we have some uplifting information. The antibody treatment developed by the drug manufacturer called sotrovimab (brand name Xevudy) has been approved by the Medicines and Healthcare products Regulatory Agency (MHRA) for use in the UK. The British regulatory body found that the drug “cut hospitalisation and death by 79%” in cases with mild-to-moderate Covid-19 symptoms. This comes after the pharma giant signed a deal, alongside Vir Biotechnology, with the US government for approximately $1bn in November.

The company’s share price has already jumped 1.6% in the last week while the FTSE 100 index has gone down 2.7% in the same period. One-year returns stand at a modest 10.4%.  However, given this major update, is the GlaxoSmithKline stock a good buy for my portfolio now? How do the long-term prospects for the company look? Let’s find out.

Money moves

In the extremely crowded pharma sector, GlaxoSmithKline is making huge strides in the R&D department. The company is focusing on areas like oncology, HIV, infectious diseases, immuno-inflammation and respiratory illnesses.

The third-quarter (Q3) report showed that HIV drug sales grew by 8%, mostly from new product sales. Its innovation products segment represents 29% of its vast drug portfolio, contributing nearly £1bn to sales so far in 2021.

Pharmaceutical sales in Q3 were £4.4bn with 10% growth in new and speciality medicines. Oncology drug sales grew 34% and vaccines sales were £2.2 billion, with new jab Shingrix (a vaccine for preventing shingles in adults) contributing £502m. Covid drugs sales stood at £209m.

Although the Covid drugs will bolster earnings in the short term, their contribution is small in comparison with other divisions. The pharma giant has a robust R&D framework to continue progress post-pandemic.

The company also hired vaccine executive Philip Dormitzer last week from Pfizer, banking on the future of mRNA technology. He played an important role in the development of Pfizer’s covid vaccine. Analysts see this as a strong move after a mini exodus of research talent from GlaxoSmithKline earlier this year.

Concerns and verdict

I think this move could push its vaccine research a long way. However, pharma shares do come with some pitfalls. Certain drug patents have a shelf life, which opens up the possibility of cheaper, non-brand alternatives. This could affect sales in global, developing markets, which is a concern for me when considering the GlaxoSmithKline stock.

Also, its dividend of 80p, which is unchanged since 2015, is set for a downgrade. Although the 5.5% yield looks meaty right now, the company is set to split off its consumer healthcare operations in 2022. The division valued at over £40bn could be primed for a takeover bid and this could subsequently dent GSK’s yield.

Despite this, I see tremendous value in the company. Given its vast R&D, it holds strong pricing power and market share. The positive news surrounding its new sotrovimab drug will also increase visibility among investors. The pharma industry has proved more crucial than ever over the last couple of years and I think the GlaxoSmithKline stock has a high ceiling. That’s why I’m tempted to invest in the company today.

The post Is GlaxoSmithKline stock the best ‘Covid pharma’ pick? appeared first on The Twelfth Magpie.

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• 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
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• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Suraj Radhakrishnan 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.

GSK shares: FTSE 100 laggard

Based purely on the performance of its share price over the last five years, it’s tempting to give GlaxoSmithKline a ‘hard pass’. GSK’s value is now 10% lower than it was in April 2016. It’s also been one of the worst shares to own in the FTSE 100 over the last year.

Considering the recovery seen in markets since the 2020 crash — not to mention Glaxo’s status as the biggest producer of vaccines in the world — this is quite some ‘achievement’. Then again, the fact that the company hasn’t come up with a Covid-19 vaccine so far hasn’t gone down well. It also helps to explain why shares in peer Astrazeneca have soared. 

On top of this, there’s a distinct possibility that GSK will be forced to reduce its dividend payouts going forward to free up cash to invest in its drug development pipeline. This makes complete sense, but it’s not what those who own the shares for their dependable income want to hear. In fact, it underlines the point that no investment is ever devoid of risk.

So, why are Hargreaves Lansdown investors suddenly interested?

Activists assemble

It all seems to be down to recent news that activist investor Elliott Management has declared a multi-billion pound stake in GSK. Activist investors tend to get the market excited because they can be a catalyst for change at a flagging company.

US-based hedge fund Elliott certainly has form when it comes to ruffling feathers. It previously pushed for change at Premier Inn owner Whitbread and had a few bruising encounters with FTSE 100 miner BHP Group.

Of course, whether its involvement leads to a seismic change of strategy remains to be seen. It certainly comes at an interesting time given GSK’s plan to list its consumer healthcare business as a separate entity next year. There’s always a chance that its involvement could make things worse.

Regardless, I think there are reasons to be positive about GSK shares. 

Defensive play

For one, demand for Glaxo’s products, such as the highly successful shingles jab Shingrix, should recover once the pandemic has passed. A host of new launches are also expected over the next five years.

In addition, there’s a lot to be said for buying highly defensive shares now. With markets around the world looking frothy once again, any wobbles will likely be felt most in hyped growth plays, not stock-for-all-seasons Glaxo. Even if markets were to continue rising, it’s quite possible that companies offering value will be the ones to thrive.

Moreover, I think those dividends are worth grabbing. A likely 80p per share return for 2021 gives a yield of 6%. If the payout is reduced by 20% in 2022 (the consensus forecast), the subsequent 4.8% yield is still very decent.

And then there’s the price. At 13 times forecast FY21 earnings, I think Glaxo offers great value.

Bottom line

GSK shares have been in the doldrums for a long time and perhaps justifiably so. It remains a contrarian bet for now.

Notwithstanding this, I’d be comfortable buying GSK shares at today’s price. As with investing in general, patience is key.

The post Hargreaves Lansdown investors are buying GSK shares. Should I? 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?

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended GlaxoSmithKline and Hargreaves Lansdown. 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.

What caused the GSK share price to fall? And is this a buying opportunity for my income portfolio?

The business during the pandemic

Despite the disruptions from Covid-19, GSK has actually performed relatively well considering the operating environment.

Overall, revenue from both the pharmaceuticals and vaccines divisions were down by 3% and 2%, respectively. But newly approved products within its portfolio have seen a significant average increase in sales of around 10%. And due to rising demand for hand sanitiser, its consumer healthcare business also achieved notable 12% growth.

These are hardly groundbreaking results. But due to cost-cutting, net income for the year actually increased by 24% to £5.75bn. Consequently, dividends weren’t cut in 2020, and roughly £5bn of debt was repaid.

Needless to say, this is all quite positive. So why has the GSK share price dropped by nearly 30% since the start of last year?

Why is the GSK price falling?

In early 2020, the company announced that its consumer healthcare business will be spun off in a joint venture with Pfizer in 2022. The cost of this separation is expected to be around £2.4bn, with £1.6n being covered by disposals. Given that GSK is still a £60bn company even after the decline in share price, this doesn’t seem too expensive to me.

Once the consumer healthcare segment has been separated, GSK will become a pureplay R&D drug development company. Which, rightfully, has created concern among income investors.

Why? Because as I’ve previously discussed, drug development is a risky business. Creating new medicines is a lengthy process that typically takes up to 10 years. And even after reaching the final phase of clinical trials, there’s still a possibility that a drug won’t receive regulatory approval or become economically viable.

I believe the increased risk profile of the business has undoubtedly contributed to its share price decline. However, the primary catalyst appears to be the fact that the company is going to be much smaller after the split. The consumer healthcare division currently contributes 40% of total revenue and that will disappear after 2022.

Consequently, GSK’s famous 4% average dividend yield is expected to be cut some time in the future, making the stock look far less appealing for income investors.

Is this a buying opportunity?

But the collapse in the GSK share price looks quite attractive to me. Don’t forget that the company isn’t splitting for another year. And so, due to the falling share price, the dividend yield today is now around 6.4%, a payout that’s more than achievable in 2021. At least that’s what I think.

However, once the company has split, it will be significantly different. Developing new drugs is a difficult task, as I said. But the firm already has 20 new products expected to launch between now and 2026. What’s more, 10 of these new drugs are expected to generate over $1bn in revenue each.

To me, GSK looks like it’s transforming itself into a growth stock. And with decades of experience under its belt, this is one business I’d be keen to add to my portfolio.

The post The GSK share price is down 30% since the start of 2020. Should I buy now? 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?

Zaven Boyrazian does not own shares in GlaxoSmithKline. 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.