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Why I Think GlaxoSmithKline plc (GSK) Is So Much More Than Just an Income Stock

LONDON — With interest rates being at historic lows, stocks such as GlaxoSmithKline plc (LON:GSK) have offered a remedy for income-seeking investors.

Indeed, the shares currently yield an impressive 4.4% despite rising by more than 30% in the last three years alone. Clearly, it is understandable why the shares usually form a key part of many investors’ portfolios.

GlaxoSmithKline plc (ADR) (NYSE:GSK)

However, pigeonholing GlaxoSmithKline plc (LON:GSK) as being little more than a source of income is, in my view, a tad unfair.

Of course, we all know the familiar story that the developed world has an ageing population, which will require treatments and health care in future on a larger scale than it currently does. This situation undoubtedly presents an opportunity for health care companies such as GlaxoSmithKline plc (LON:GSK).

However, the potential for share-price gains also exists over a much shorter investment horizon.

Unlike stable mate AstraZeneca plc (LON:AZN), GlaxoSmithKline plc (LON:GSK) has successfully managed its portfolio of patented blockbuster products. Indeed, it seems to have avoided a so-called patent cliff — where old patents expire, there are no new products to replace them, and revenue then declines significantly.

This year alone, GlaxoSmithKline plc (LON:GSK) is hoping to gain regulatory approval for a handful of potentially blockbuster treatments, with the latest positive news coming at the end of May when approval was obtained for two of the company’s medicines to treat advanced melanoma in patients with certain gene mutations.

Of course, approvals are not guaranteed but it appears as though the company is, in sporting terminology, throwing a lot of darts so that it has a good chance of hitting the bull’s-eye.

In addition, the shares currently trade on a P/E of 14.3 and offer fairly brisk earnings-per-share growth of around 6.5% per annum.

Although GlaxoSmithKline plc (LON:GSK)’s shares trade on a higher multiple than peers such as AstraZeneca plc (LON:AZN) and the market as a whole, I believe the potential for the company to deliver positive news flow means the shares remain attractive at the current price of 1,670 pence.

Even if the above is not enough to get your pulse racing, the shares sit at No. 19 in the top yielders of the FTSE 100 index. Buy them for an income, yes. Just don’t think that’s all you could be getting!

The article Why I Think GlaxoSmithKline Is So Much More Than Just an Income Stock originally appeared on and is written by Peter Stephens.

Peter Stephens owns shares of GlaxoSmithKline. The Motley Fool recommends GlaxoSmithKline.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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