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3 reasons why I rate the GSK share price a buy today

Alan Oscroft
·3-min read
Coronavirus 2019-nCoV Blood Samples Medical Concept
Coronavirus 2019-nCoV Blood Samples Medical Concept

GlaxoSmithKline (LSE: GSK) has been through its ups and downs, having to rebuild its drugs development pipeline after the loss of some key patents. That was always going to take some time, but time is at the very heart of the long-term investing approach that we favour at The Motley Fool. I’m seriously upbeat about the long-term outlook for Glaxo, and I see the GSK share price as a top FTSE 100 buy right now. Here are three reasons why I think 2020 is a great time to buy.

Covid-19

The Covid-19 pandemic has affected the GSK share price in a strange way. The shares fell relatively gently in the early days of the crisis, and they started to recover quickly and strongly. At the time, a lot of investors were buying shares in pharmaceuticals companies in the hopes of getting rich through vaccine profits.

On Wednesday, Glaxo announced that it and Sanofi intend to make 200 million doses of their in-development vaccine available to the COVAX facility. The intent of that is to make sure vaccines reach those in need worldwide, all subject to approvals. So wait… maybe it’s not all about making maximum short-term profit after all?

I still think Covid-19 research is going to help boost the GSK share price in the long term. At the interim stage, Glaxo was talking of producing 1 billion doses in 2021. It seems increasingly unlikely that one vaccine will eradicate the virus, and I reckon Glaxo’s early expertise should place it at the leading edge of research in the coming years.

GSK share price has fallen

The ‘no quick Covid-19 profits’ realisation probably lies, at least in part, behind the fall in the GSK share price since its recovery peak in May. Since then, the shares have relentlessly slid back. And today, GlaxoSmithKline is down 24% year-to-date, in line with the fall in the FTSE 100.

Based on current forecasts, that fall puts GSK shares on a forward price-to-earnings multiple of under 12. The company does carry large debt, and we need to take that into account too. My Motley Fool colleague, Kevin Godbold, has estimated the firm’s debt-adjusted P/E at around 17.

That’s a bit above the long-term FTSE average of about 14. But for a company of this quality, I see it as an attractive valuation. That’s reinforced in my mind by the Glaxo dividend, which looks set to yield 6%.

Ageing affluent populations

But is the GSK share price cheap when we look at the long-term future for the company? I think that’s a very big yes, and it’s largely down to the relentlessly rising demand for drugs to treat diseases of affluence.

Respiratory illnesses, chronic inflammatory diseases, oncology. Those are all areas in which GlaxoSmithKline is focused. They’re all growing problems in developed affluent economies. And more and more parts of the world are gaining in affluence every year. On a more positive note, this means there is also a growing market for GSK’s consumer health products, including vitamins, minerals and supplements.

I rate GlaxoSmithKline as one of the FTSE 100’s best long-term buys. And the current GSK share price weakness makes it even more attractive to me.

The post 3 reasons why I rate the GSK share price a buy today appeared first on The Motley Fool UK.

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Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has recommended GlaxoSmithKline. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Motley Fool UK 2020