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Shares in this FTSE 100 champion are down 16% in a year! But would I buy big today?

Cliff D'Arcy
·3-min read
Scientist filling a needle
Scientist filling a needle

It’s been a decent week for the FTSE 100, which climbed 155 points (nearly 2%) to close on Friday just short of 6,017 points. While some people get excited when the Footsie clears thousand-point markers, I don’t see passing the 6,000 mark as significant.

The FTSE 100 has had a bad 12 months

That said, the past 12 months have been grim for the FTSE 100. Indeed, our main market index has had a meltdown broadly akin to those seen in 2002 and 2008.

For the record, the FTSE 100 has plunged by 1,230 points since 11 October 2019, a slump of a sixth (17%). Of course, most of this damage was done in early spring, when the Footsie collapsed below 5,000 points on 23 March, before staging a 20% recovery since.

This FTSE 100 heavyweight has followed the market down

One trend I’ve previously noted is that the bigger the FTSE 100 company, the more its shares have crashed in 2020. Obviously, there are a few exceptions – yet by and large, this tendency has been pretty pronounced.

Take, for instance, shares in pharmaceutical giant GlaxoSmithKline (LSE: GSK) – one of the UK’s few world-class healthcare companies. This FTSE 100 stock closed at 1,447.2p on Friday, up 21.8p (1.5%) on the day. Yet GSK shares have slipped downwards with the wider market, losing almost a sixth (15.9%) of their value in 12 months.

GSK shares bump along near their low

At their 52-week high, GSK shares closed at 1,857p on 24 January. Then, during the spring meltdown, they plunged to a low of 1,328.2p on 16 March.

After this 28.5% slump from its 2020 high, the stock has zigzagged downwards pretty much relentlessly since mid-May. Today, GSK’s share price hovers just 9% above its March low. As a result, it has underperformed the FTSE 100 by about seven percentage points over six months.

I believe GSK’s slump has gone too far

Right now, GSK falls soundly into a category I call ‘SLR shares’. These are my favourite stocks in the FTSE 100, because they offer an attractive combination of Safety, Liquidity and Returns (in that order).

I’ve been a GSK shareholder for most of the past 30 years and I think they offer compelling value today. Here’s why:

1. They trade on a price-to-earnings ratio of 10.9, for an earnings yield of 9.2%. That’s considerably cheaper than the FTSE 100 overall.

2. GSK’s yearly dividend of 80p a share is well-covered by its latest earnings per share of 133p. This translates into a current dividend yield of 5.5%, which is almost two-fifths higher than the FTSE 100’s dividend yield of roughly 4%.

3. It offers security and deep liquidity as it’s a FTSE 100 heavyweight valued at £72.6bn. It’s also a global leader in HIV/AIDS, oncology (cancer) and respiratory treatments (and vaccines).

In summary, I won’t be selling or just holding on. I’d be more than happy to add to my holding in this FTSE 100 champion at today’s price. And I’ll keep reinvesting my dividends into yet more GSK shares to increase my stake while prices are so low.

The post Shares in this FTSE 100 champion are down 16% in a year! But would I buy big today? appeared first on The Motley Fool UK.

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Cliffdarcy owns shares of GlaxoSmithKline. 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.

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