The GSK share price has soared 15%. Here’s why I think the FTSE 100 stock can’t be ignored

GlaxoSmithKline plc (LON: GSK) could offer stronger prospects than the FTSE 100 (INDEXFTSE: UKX).

| More on:

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.

In a year where the FTSE 100 has experienced a challenging period, GlaxoSmithKline (LSE: GSK) has been able to deliver impressive share price gains. The company’s stock price has risen by 15% since the start of the year, while the FTSE 100 is down by 7% during the same period.

Looking ahead, the stock could continue to outperform the wider index. It appears to offer a mix of growth potential, a margin of safety, and improving income prospects. Alongside another stock which reported improving performance on Friday, it could be worth buying for the long term.

Solid performance

The other company in question is global engineering business Morgan Advanced Materials (LSE: MGAM). It released a trading update for the first 10 months of the year, with sales during the period up 7.2% on the previous year. For the four-month period from July to October, sales increased 6.4%. Headline operating margins remain in line with those reported previously for the first half of the financial year.

The company is also on track to meet expectations for the full year. Its sales for the Thermal Products division were 7% up on the first 10 months of the previous year, benefitting from an improved performance in Asia. Meanwhile, the Carbon & Technical Ceramics division recorded sales growth of 9.2%, with growth in Electrical Carbon, Sales & Bearings, and Technical Ceramics being key drivers.

Looking ahead, Morgan Advanced Materials is expected to post a rise in earnings of 11% in the current year, followed by further growth of 9% next year. With its shares trading on a price-to-earnings growth (PEG) ratio of 1.5, they could deliver capital growth over the long run.

Improving prospects

While the GSK share price may have risen significantly in 2018, it also continues to offer a margin of safety. The company has a price-to-earnings (P/E) ratio of 13.9 which, given its size and diversity, could indicate that it offers investment potential.

In terms of its business model, GlaxoSmithKline may become increasingly popular among investors. Given the volatility in the FTSE 100 so far this year, and the uncertainty which faces the world economy at the present time, it would be unsurprising for investors to focus on stocks which offer defensive characteristics. Since the company has a diverse range of operations that span consumer healthcare, vaccines and pharmaceuticals, it may have increasing appeal. That’s especially the case since its financial performance could be less correlated to the wider economy’s outlook than many of its index peers.

With GlaxoSmithKline having a dividend yield of 5.1%, it continues to offer an impressive income outlook. Although dividends have been frozen in recent years, a refreshed strategy could lead to an improving bottom line. This may translate into a higher dividend over the next few years, which could boost the total return potential of the stock and help it to stay ahead of the FTSE 100.

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.

Peter Stephens owns shares of GlaxoSmithKline. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. The Motley Fool UK has recommended Morgan Advanced Materials. 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

US Stock

The Nvidia share price falls! Here’s what I think happens next for the S&P 500

Jon Smith reviews the overnight results from Nvidia and explains why this could stall the S&P 500 performance through to…

Read more »

Investing Articles

Down 15% today, is this FTSE 100 share too cheap for me to miss?

JD Sports' share price has tanked after the FTSE 100 share released another profit warning. Is this the opportunity I've…

Read more »

Investing Articles

Up 8% today, is this FTSE 100 growth stock a slam-dunk buy for me?

Halma's share price is soaring thanks to another headline-grabbing trading update. Is the FTSE 100 stock now too good for…

Read more »

Investing Articles

With a P/E ratio of just 10.5 is now a brilliant time to buy a cut-price FTSE 250 tracker?

Harvey Jones says a recent dip in the FTSE 250 leaves the index trading at bargain levels. One stock in…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

To build a passive income flow, I’d follow this Warren Buffett approach

Warren Buffett has set up passive income streams most people can only dream about. Our writer sees some practical lessons…

Read more »

Growth Shares

As the boohoo share price falls, could it become a penny stock in 2025?

Jon Smith outlines some of the recent problems involving the boohoo share price and considers if things could get even…

Read more »

Young Asian woman with head in hands at her desk
Investing Articles

Here are the worst-performing FTSE 100 shares over the last 5 years

These five FTSE 100 shares have been complete duds over the last half decade. But is there potential for a…

Read more »

Investing Articles

Nvidia stock has tripled this year! Can it keep rising?

Nvidia's latest sales update showed strong growth and the stock's been on a tear so far in 2024. So is…

Read more »