Black Friday was not favorable for US stocks. Each major U.S. stock index fell more than 2% in the cut-off trading session amid concerns about the omicron coronavirus variant. While it is still too early to say whether this latest variant will disrupt global trade in any meaningful way, stock markets around the world are likely to be volatile until this threat is resolved. In turn, investors may want to take a defensive stance on equities for the remainder of the year.
What is the best strategy to strengthen your portfolio’s defense against market-wide volatility? Holding stocks of companies with stable free cash flow, above-average dividend yields, and reasonable valuations is always a good idea, especially in uncertain economic climates. The pharma titan GlaxoSmithKline (NYSE: GSK) tick all of these boxes. Here’s why this leading pharmaceutical stock is worth buying right now.
GlaxoSmithKline: A story of transformation
GlaxoSmithKline (aka Glaxo) has been one of the top performing stocks of major pharmaceutical companies over the past 10 years. Shares of the British drugmaker are currently down more than 1% in this long period, which is an impressive achievement given that it has covered one of the hottest bull markets in recorded history. .
Glaxo shares have significantly underperformed its peers over the past 10 years due to a plethora of headwinds, such as patent expirations, low returns on external and internal pipeline candidates, and development activity. expensive trading that did not impress Wall Street. In an odd turn of events, however, Glaxo’s stock has easily been one of the top performing biopharmaceutical stocks in 2021.
Glaxo’s resurgence in 2021 is particularly noteworthy in light of the fact that a large portion of the biopharmaceutical industry is currently down double-digit this year. The pharmaceutical giant’s stock, in fact, is near a 52-week high as of this writing.
Glaxo’s happy new year stems mainly from management’s bold decision to finally turn the consumer healthcare unit into a stand-alone business from 2022. Coupled with this split, the drugmaker also expects to be active in the mergers and acquisitions scene in an attempt to strengthen its pharmaceutical portfolio and pipeline.
Although speculative in nature, Glaxo may decide to deepen its relationship with its current partners Adaptimmune Therapeutics, Arrowhead Pharmaceuticals, and or 23andMe Holding Co. from next year. Such steps would give the company truly new research and development capabilities as the second half of the decade approaches, a feature that is sorely lacking in its drug development platform today.
Now the bad news is that Glaxo will cut its dividend by around 30% next year to generate the cost savings needed to pursue value-creating acquisitions. Glaxo’s annual dividend yield is therefore expected to fall from its current record rate of 5.37% to a more modest level of 3.76% (all other things being equal).
That’s still an above-average dividend yield for a large-cap pharmaceutical stock, however. Additionally, the drugmaker’s shares are currently valued at less than 2.5 times its 12-month sales, which is a low valuation for a high-dividend stock.
All things considered, Glaxo’s stock offers investors a high degree of security in this turbulent market, thanks to its continued transformation into a growth-oriented company, a top-notch dividend program and a very cheap valuation.
This article represents the opinion of the author, who may disagree with the âofficialâ recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Questioning an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.