Minimising risk is a key priority for many investors and so it is always good to hold shares of companies in ‘defensive’ sectors in an investment portfolio. They provide the solid foundation during cyclical downturns that sectors with ‘discretionary’ demand – like luxury or retail – don’t as the latter suffer typically sharp dips.
Companies like the accounting software provider Sage Group and paper-based packaging provider Smurfit Kappa are good examples of defensive plays. Pharmaceuticals and consumer-healthcare major Glaxo SmithKline (LSE: GSK) is another such stock, which I reckon is a great buy right now. Here are three reasons why.
Splitting up to come together
For start, the company is at the beginning of a bold and highly interesting change – a split-up into two separate entities. One of these will focus on pharmaceuticals and vaccines and the other will concentrate on consumer healthcare.
And this is not all. The latter will merge with Pfizer to form what will likely be one of the largest companies in the sector across major markets. I really like the idea that GSK’s consumer healthcare business will get a big boost, and put it in a position of market leadership by a mile.
Window of buying opportunity
A soon as the announcement hit the news in December last year, the share price rose sharply, by 3.8% compared to the previous day. A little over a month later, however, it has fallen back to pre-announcement levels. Which brings me to my second point: this is a great time to buy this stock, especially since the company’s quarterly results are due soon, which could lead to another upswing in share price. If you are an investor who is focused on risk-aversion, I think GSK is worth considering.
Of course, if you like the thrill of a bit of risk for some gain, you might want to wait for results day and ride the share price rollercoaster, especially so given the recent relation of the share price to results announcements. The price has fallen between 1% and 3.5% on three of the previous four results days in the past year, but has recovered quickly thereafter. That said, I wouldn’t focus too much on this point, given that for the Foolish investor who’s in it for the long haul, such short-term ups and downs are irrelevant.
Complete dependability
To assess GSK’s long-term investing potential, a look at the financials confirms that it is is a company with strong investor appeal. It has seen steady growth in revenues over the past few years and it continues to be profitable. Last but certainly not least, I cannot ignore the significance of this company as Brexit happens. Less than 30% of the companies’ revenues came from Europe in the last quarter, with the rest coming from the US and other international markets, helping to protect it from excessive exposure to a possibly-weaker UK or EU economy. I’d buy this share today.