These are stressful times to be a share investor. The FTSE 100 continues to dive and a fall below 6,500 points earlier took it to its lowest since summer 2016.
It’s true that those with a sound stock-buying strategy should have little to fear in the wider scheme of things. You should always look to load up with a view to holding companies for the long term, say a minimum of 10 years. If you’ve done your homework then, it’s likely that your equities will recover from the current rout and make you some big profits in the coming years.
Still, it’s quite disconcerting for someone to see their stocks portfolio smeared in red. With the global issues continuing, it’s difficult to predict when the haemorrhaging will stop. In times like this it may be a good idea to load up on classic defensive stocks.
The current washout is hammering all stocks, regardless of their risk profiles. But safe havens could be among the first to rise when market appetite tentatively begins to pick up.
A safe-haven sinker
Healthcare is a classic safe haven in times of social, political and economic crises like now. Consumer spending on a variety of goods and services might take a whack, but one thing we cannot do without is medicines.
I believe that buying shares in GlaxoSmithKline (LSE: GSK) could be a good idea following recent heavy selling. The Footsie firm’s fallen 15% in value since hitting 20-year highs in the middle of January. Some insipid full-year financials at the start of the month set the train in motion. And those fears over the COVID-19 crisis have worsened the rout.
At current prices though, Glaxo carries the sort of valuations that could tempt dip buyers before long. Its forward P/E ratio of 13.7 times certainly looks cheap. And a 5.1% dividend yield for 2020 looks juicy too. It beats the corresponding prospective average for the broader FTSE 100 by around one whole percentage point.
Bad news
As I say, those latest financials weren’t exactly top-drawer stuff. Glaxo said that total revenues rose 9% in the fourth quarter to £8.9bn and that adjusted operating profits tanked 16% to £1.9bn. The latter figure in particular was much weaker than the City had been expecting.
This wasn’t the worst of it. Glaxo warned that adjusted earnings per share would likely fall between 1% and 4% at constant exchange rates in 2020. This reflects a ramping-up of R&D costs as well as expectations of more currency-related headwinds.
A long-term lovely
The release was disappointing, sure. But is it a game-changer for Glaxo’s investment case? Certainly not, at least in my opinion.
There were certainly some positive nuggets of information in that latest statement that underlined the pharma play’s terrific long-term profits outlook. Sales of blockbuster new products like Shingrix continued to rip higher in the last quarter. There was exciting news on the pipeline too. Glaxo said that it expects regulatory approval on six products spanning the business in 2020. It is also expecting proof-of-concept readouts on what it deems “several key pipeline assets” in oncology and vaccines later this year.
Its share price might be on the defensive today. But I fully expect Glaxo to bounce back sooner rather than later.
