GSK’s (LSE: GSK) share price rose on Friday 23 June on news of a settlement over its Zantac drug. The terms of the settlement were confidential, although the company did not admit any liability. But that was not the point for the markets – the point was that it ended the uncertainty over the case. And the markets hate uncertainty.
Now the markets can refocus on the core investment proposition of GSK, which looks very good to me. Better still is that even with the rise on Friday, the stock is still down 7% from its year high. This means a possible bargain.
AstraZeneca uncertainty may be beneficial
I hold shares in both GSK and AstraZeneca, the two main companies in the FTSE 100’s Medicine and Biotech sector. If I didn’t and wanted exposure to the sector, then I would probably plump for GSK now.
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The reason is, again, uncertainty. Specifically, according to several reports, AstraZeneca may spin off its lucrative China business. The listing of a separate unit in Hong Kong or mainland China is also rumoured to be an option.
To me, these are rumours only and are irrelevant. But many investors will be put off by the uncertainty they create. And this may well benefit GSK as the other main firm in the same FTSE 100 sector.
GSK has suffered in some respects in the past through comparison to its rival. This has mainly been due, in my opinion, to the disparity in new products pipelines between the two firms. AstraZeneca currently has 179 items in the pipeline, while GSK has 68. The key now, though, is that the latter does not have uncertainty surrounding its future, while AstraZeneca does.
Very promising products pipeline
It may have fewer new products in the pipeline than its rival, but they look good to me. One key area for it is respiratory medicine and, to this end, it bought Bellus Health in early April. It has a potential world-leading treatment for chronic coughs. This is expected to be a big seller through to 2031, adding to adjusted EPS from 2027.
Its Shingrix shingles vaccine also continues to perform strongly, generating £833m in revenues in Q1 2023. This compared to consensus analyst expectations of £829m.
GSK also affirmed its earlier guidance for increases in turnover, profit, and earnings per share (EPS) this year. Turnover is expected to rise by 6%-8%, adjusted operating profit by 10%-12%, and adjusted EPS by as much as 12%-15%.
Healthy dividend yields
The shares have also come with very healthy dividend yields in recent years. 2022 saw a dip to 3.1%, but it was 4% and 4.8% in the two previous years.
There are risks for me in the share price, of course. Pharmaceutical companies spend much time and money on product development and if one fails then it is a huge setback. They are also vulnerable to legal action against them if products cause problematic side effects, as seen with Zantac.
I have maintained unbroken holdings in GSK for many years now and am happy to continue to do so. The shares have provided me with considerable gains in terms of price and dividends. I would buy the stock now, if I did not own it, to provide me with sustained long-term gains.
