This week we’ve been reading a lot about volatility in the market, and how the FTSE index has done a very poor job of making money for investors over a 10 year time horizon. However, there are some stocks out there which have managed to beat the FTSE and are deservedly enjoying plenty of investor interest. One of these is GlaxoSmithKline.

GSK share price: a blue chip defensive play?

GSK shares had a turbulent time of it during the market volatility of 2008-09, but the company itself is considered to be a blue chip defensive stock by many fund managers. In the depths of the financial crisis you could have picked up GSK shares for around 1000. Despite its ups and downs since then the pharma giant is now worth 1423 and has been trading as high as 1700 – it has hit 1724 in the last year or so.

But should you be buying GSK shares now, in the hopes of better times to come?

GSK seems to be cleaning up its act and getting a better handle on what it does best. Last month it pulled out of a $20 billion bidding contest for Pfizer‘s consumer healthcare business in order to buy out the partner in its own healthcare joint venture, Novartis.

GSK says this deal will strengthen operational cash flows and analysts think this could help to pacify critics who are worried about GSK’s ability to grow its dividend in the future.

“The deal is also important  as it will enable the business to better plan for capital allocation in the future, namely money to be used for pharmaceutical research and development among other activities,” comments Russ Mould, investment director at AJ Bell.

GSK chief executive Emma Walmsley is focusing on improving GSK’s pharmaceutical business as part of a back to basics strategy. This usually plays well with investors.

The long term picture for GSK

But go beyond the short term and you will see a GSK share price which, despite its ups and downs, has actually beaten the FTSE 100 over the last 10 years. There is no getting away from that.

Investors like cash dividends at the moment, mainly because interest rates are still so low, and big companies like GSK come under fire if they do anything which looks like it will jeopardise dividends. One of the reasons investors look at big blue chips like GSK is because they want to see a predictable dividend steam. In short they want it to behave like a bond.

But if you are looking for a share price that has grown over the longer term, the sort of stock you can park in your portfolio and be reasonably confident it will both pay dividends and actually be worth more in 10 years, it is tough to argue with the GSK share price. There will be plenty of short term negativism, of course, but the new CEO Walmsley, who took over in 2017, is starting to make her presence felt.

With all the speculation about whether GSK was going to bid for Pfizer assets, the GSK share price had taken a bit of beating, falling from the 1700 level to about 1287. With that speculation out of the way, we may see some more upward movement in Q2.

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Commodities and Shares Editor
6th April 2018
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