It’s been a mixed year for investors in GlaxoSmithKline (LSE: GSK) (NYSE: GSK.US) and Shire (LSE: SHP) (NASDAQ: SHPG.US). While the former has seen its share price fall by 14% since the turn of the year due to allegations of bribery and weak sales from key blockbuster drugs, the latter has seen its share price soar by 43% year-to-date.
Of course, investors in Shire would argue that 2014 could have been a whole lot better, were it not for US rival AbbVie backing out of a deal to acquire its Irish-based peer.
Looking ahead, though, both companies appear to have very bright futures and a mix of the two could prove to be a stunning combination. Here’s why.
Income Potential
When it comes to income prospects, GlaxoSmithKline takes some beating. Indeed, the pure-play pharmaceutical company currently yields a whopping 5.8%, which is higher than practically any other stock on the FTSE 100. Furthermore, GlaxoSmithKline is also very generous when it comes to increases in dividends, with them having risen by almost 28% on a per share basis during the last four years. Although next year’s forecast rise of 1.5% may seem disappointing in comparison, it is still ahead of inflation.
Growth Prospects
While Shire currently yields just 0.4%, it more than makes up for this via stunning growth potential. For example, when the AbbVie deal was ‘on’, Shire made presentations to the investment community where it stated that it was targeting a doubling of sales between now and 2020. If achieved, that would be a staggering rate of growth and it shows just how much potential Shire believes it has in its medium to long term pipeline. Looking a little nearer term, Shire is forecast to grow its bottom line by 28% this year and by a further 10% next year, both of which highlight its top-notch growth potential.
Valuation
With shares in GlaxoSmithKline trading on a price to earnings (P/E) ratio of 14.9, they seem to offer great value for money. While their rating is higher than that of the FTSE 100 (which has a P/E ratio of 13.6), for a major pharmaceutical stock with a stunning yield and a strong future pipeline, it seems to be a price well-worth paying.
Similarly, with Shire having a price to earnings growth (PEG) ratio of just 0.7, it appears to offer growth at a very reasonable price – especially if it is able to meet its target of doubling sales within five years.