There is something to love and hate in most stocks, although GlaxoSmithKline (LSE: GSK) (NYSE: GSK.US) is more lovable than most. Here are five things I really like about it today.
Glaxo is big enough to fail
The late-stage failure of Glaxo’s $10 billion-a-year megablockbuster heart drug Darapaldib was a blow, even if it may still have niche uses. It isn’t the only recent big failure on Glaxo’s, either — cancer vaccine MAGE-A3 also suffered a late-stage flop. This even prompted broker Panmure Gordon to cut its rating from ‘buy’ to ‘hold’. But with four R&D approvals out of six this year, Glaxo still has plenty to offer, and should avoid following AstraZeneca over the dreaded patent cliff.
It is also big enough to survive China
The China bribery scandal sparked a 61% drop in sales in the country, as doctors refuse to see Glaxo sales staff. But Glaxo’s bottom line can withstand that, too, given that Chinese revenues account for less than 5% of its global total. That’s the value of global diversification. Better still, rumours suggest the China crisis is easing. Glaxo should brace itself for a meaty fine, but is thought unlikely to be slung out of the country. In China, anything can happen, of course. But one thing is certain: Glaxo will survive.
It’s a great share to buy and forget
Last month, Barclays lowered Glaxo’s target price from 1555p to 1545p and retained an equal-weight rating. JP Morgan cut its target price from 1900p to 1750p and stuck it in neutral. With the share price currently 1611p, neither expect much growth. But frankly, who cares? Glaxo is the ultimate buy-and-forget stock in my portfolio. A stock I plan to retire on. Given time, the growth will come. Until then, the dividends will keep rolling in.
Management looks after shareholders
Glaxo generates loads of cash, with net cash flow of £2.3 billion in the third quarter, and is using it to reward loyal shareholders. It has made £1 billion of share buybacks so far this year, and management is targeting up to £2 billion. The Q3 dividend was lifted 6% to 19p. Today, Glaxo yields 4.6%, covered 1.5 times, comfortably above the FTSE 100 average of 3.5%. Loyalty pays.
This company doesn’t rest
Despite piling up all that cash, Glaxo is still focused on reducing costs and improving processes in a bid to save £1 billion a year by 2016. It has also improved its strategic focus and boosted growth prospects by selling Lucozade and Ribena to Suntory for a fizzy £1.35 billion. Its acquisition of US biotechnology partner Human Genome Sciences will help its push to develop new products. Glaxo has struggled lately but, in the longer run, there is still plenty to love.