Here’s why the GSK share price could be set to beat the FTSE 100

GlaxoSmithKline plc (LON: GSK) shares have been lagging the FTSE 100, but could 2018’s comeback mark a new upward trend?

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Shares in GlaxoSmithKline (LSE: GSK) have put in a pretty unimpressive five years, dropping 12% — soundly beaten even by the FTSE 100’s lacklustre 15% rise.

But since the start of 2018, we’ve seen a 14% gain while the Footsie has remained flat, so are we set for a resurgence? If Wednesday’s second-quarter results are indicative of a new trend of earnings growth, then yes, I think we might finally be seeing the benefits of the investment the company has made in its drugs development pipeline.

We actually have already had a couple of years of EPS growth, but the flat couple of years expected ahead of us look to be holding investors back from their previous decades-long confidence in the company.

Passive income stocks: our picks

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

Narrow portfolio?

My colleague Harvey Jones has aired a warning over the dependence on a small number of key products, and the risk with that has been highlighted recently by the troubles facing Indivior — its one major product is already under threat from a generic drug manufacturer.

But Glaxo has some impressive offerings in addition to its current star HIV treatments on offer, though an update on FDA examination of its mepolizumab COPD offering on Thursday won’t have done it any favours. In short, though the vote went in favour of the safety of the drug, there was apparently not sufficient evidence of efficacy when used as an add-on treatment to inhaled corticosteroid-based products.

That doesn’t mean it’s dead, and further investigation into the population of sufferers who could benefit from the treatment might still lead to progress.

There also still seems to be some negative sentiment towards old-style pharmaceuticals giants from people who see nimble new biotechnology as being set to eclipse the blockbuster drugs model — especially the promise offered by genetics-based technology.

New technology

But I think that’s missing a very key point, and that’s that the drugs approval process is still a massively expensive enterprise. Upcoming new companies with promising ideas and interesting early results just don’t have the billions at their disposal for financing the process — and they rarely expect to go the whole way themselves anyway.

GlaxoSmithKline, of course, does have the cash, and that’s a key attraction of its partnership with 23andMe, which does genetic testing and analysis. 23andMe has built up a sizeable database of human genetic profiles. To a significant extent, that’s been driven by the benefits that genetic testing can offer to the increasingly popular genealogy market — find your ancestors and identify your possible genetic illnesses too.

Glaxo’s $300m investment in the firm looks like a canny move to me, and it could provide a very valuable set of data to contribute to computer modelling of the mechanisms of genetic conditions and how target drugs might work.

The world’s big pharmaceuticals companies are surely far more likely to benefit from new technology than to be threatened by it.

Buy or sell?

Even though Glaxo’s 11% share price loss over five years is disappointing, investors have also been enjoying dividends of 5%-6% per year. And that actually makes for a reasonable overall return, especially for those who reinvested their dividends when the share price was depressed.

A P/E close to the long-term FTSE 100 average of around 14, with forecast dividend yields of 5.2%? Looks good to me.

AI Revolution Awaits: Uncover Top Stock Picks for Massive Potential Gains!

Buckle up because we're about to dive headfirst into the electrifying world of AI.

Imagine this: you make a single savvy investment in some cutting-edge technology, then kick back and watch as it revolutionises entire industries and potentially even lines your pockets.

If the mere thought of riding this AI wave excites you and the prospect of massive potential returns gets your pulse racing, then you’ve got to check out this Motley Fool Share Advisor report – 'AI Front Runners: 3 Surprising Stocks Riding The AI Wave’!

And here’s the kicker – we’re giving you an exclusive peek at ONE of these top AI stock picks, absolutely free! How’s that for a bit of brilliance?

Get your free AI stock pick

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Alan Oscroft 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.

More on Investing Articles

Runner standing at the starting point with 2025 year for starting in new year 2025 to achieve business planing and success concept.
Investing Articles

5 investment trusts to consider for a new 2025 ISA

The biggest challenge when starting an ISA is choosing which stocks to buy. Investment trusts can make it a whole…

Read more »

Smart young brown businesswoman working from home on a laptop
Investing Articles

Have I left it too late to buy Nvidia shares?

When the whole world was racing to buy Nvidia shares, Harvey Jones decided they were overhyped. Does the recent dip…

Read more »

Dividend Shares

I asked ChatGPT to pick me the best passive income stock. Here’s the result!

Jon Smith tries to make friends with ChatGPT and critiques the best passive income pick the AI tool suggested for…

Read more »

The flag of the United States of America flying in front of the Capitol building
Investing Articles

Hargreaves Lansdown’s clients are buying loads of this US growth stock. Should I?

Our writer's noticed that during the week after Christmas, many investors bought this US growth stock. He asks whether he…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

Greggs shares plunge 11% despite growing sales. Is this my chance to buy?

As the company’s Q4 trading update reveals 8% revenue growth, Greggs shares are falling sharply. Should Stephen Wright be rushing…

Read more »

Surprised Black girl holding teddy bear toy on Christmas
Investing Articles

Will ‘biggest ever Christmas’ help keep the Tesco share price climbing in 2025?

The Tesco share price had a great year in 2024. And if 2025 trading continues in the same way, we…

Read more »

Investing Articles

This dirt cheap UK income stock yields 8.7% and is forecast to rise 45% this year!

After a disappointing year Harvey Jones thinks this FTSE 100 income stock is now one worth considering for investors seeking…

Read more »

Group of young friends toasting each other with beers in a pub
Investing Articles

With much to be cheerful about, why is this FTSE 250 boss unhappy?

JD Wetherspoon, the FTSE 250 pub chain, is a British success story. But the government’s budget has failed to lift…

Read more »