When stock markets crash, people usually panic and look to offload shares. They are always looking at how they can protect themselves and what they can salvage from plummeting investments.
Investors who usually do well in troubled times are those who do not panic sell and conversely hold on to their shares. Those who are on the lookout for bargains are the savviest of them all.
I often wonder what the perfect stock looks like and I then come to my senses quickly and realise there is no such thing. However, there are a few that come close or some you could put into a category I like to call ‘buy and hold forever’.
Profile
GlaxoSmithKline (LSE:GSK) fits into the above category in my opinion. The 150-year-old pharmaceutical giant specialises in medicines, vaccines. and consumer health products. This current market crash has been caused by a global pandemic and health crisis. Common sense suggests such a company would continue to survive a harsh economic climate, if not thrive.
At a turbulent time such as this, investing in larger companies is smart, as smaller businesses are struggling. GSK is huge, with a market value close to £75bn. With that type of value it easily cements a place in the top five of FTSE 100 members, based on sheer size.
Performance and recent events
The market crash has wreaked havoc on global markets. I have written recently about companies that have seen decreases of almost 70% in share price. GSK has only seen a 20% loss in its share price value. To put this into perspective, GSK’s share price was trading at around 1,800p at the end of January. At the time of writing, it has just surpassed the 1,500p mark.
GSK announced its full-year 2019 results just before the pandemic began to impact markets. It delivered a good performance with growth in sales and earnings, together with strong cash generation.
Turnover for the group was up an impressive 10%. Sales exceeded £33bn, which is an increase of 2% over the previous year. Cash generation was down slightly as this was impacted by payments for returns and rebates. Nevertheless GSK’s cash flow is still healthy. Overall, all three divisions, pharmaceuticals, vaccines, and consumer healthcare products, saw increases in growth.
The takeaways from this full-year trading update are encouraging for shareholders and potential investors alike. I believe it shows a business well-positioned in a competitive industry. The announcement also touched upon 2020 plans to invest in further R&D and new companies too.
Next steps
GSK’s dividend per share remains at 80p, the same as for the past four years. This is not a negative, however, as it still represents an extremely attractive dividend yield of almost 6%. The current price-to-earnings ratio sits at close to 15, which to me means there is little risk involved here.
My overall consensus is that GSK presents a real opportunity at this time, given the price drop. The old adage goes ‘never say never,’ but I feel GSK is almost too big to fail. As I mentioned earlier it is one that will sit comfortably in your buy and hold category if you are attracted by its dividend yield and current cheap price.
