If you are looking for stocks you can buy and forget for the rest of your life, I highly recommend taking a closer look at the GlaxoSmithKline (LSE: GSK) share price. GSK is one of the world’s largest pharmaceutical companies and, after several years of treading water, the group is finally back on a growth footing.
Indeed, City analysts believe revenues will grow by more than 10% over the next two years, and earnings per share will jump from 91p in 2018 to 119p in 2020. As well as this growth, investors can look forward to a dividend yield of 4.7%, slightly above the FTSE 100 average of 4.5%.
But it’s not just the next two years that matter for investors buying the GSK share price for the long term. We need to be sure the company can continue to report earnings growth for the next 10, 20 or 30 years. I think it can and, today, I’m going to explain why.
As the world’s population grows in both size and wealth, demand for Glaxo’s products is only increasing. A bigger global population needs more healthcare treatments, and rising wealth means more people can afford them.
For its part, Glaxo is a world leader in the research, development and sale of vaccines as well as consumer health products. In the vaccine business, turnover jumped 23% year-on-year in the April-June quarter. A “strong uptake” in the US for Shingrix, a shingles vaccine, as well as rapid sales of meningitis vaccines, helped boost the division’s overall performance.
But vaccines and consumer healthcare only account for around half of GSK’s total sales. The rest is made up of pharmaceuticals, which are usually protected by patents. These allow the company exclusive manufacturing rights for many years, if not decades, protecting the revenue stream from competitors.
Glaxo has invested billions in its pharmaceuticals pipeline over the past decade, and this is now really starting to pay off. Its HIV business is performing particularly well with sales rising 2% during the quarter.
The company’s treatment development pipeline gives us the best insight into how Glaxo is prepared for the future. At the end of June, the group had 44 new medicines in development with 13 new vaccines covering everything from respiratory diseases, to cancer treatment and HIV infection.
The company is currently spending £1bn a quarter to develop these new products, as well as finding new treatments to fill the pipeline. This spending should ensure Glaxo stays at the cutting edge of the industry, and that gives me confidence in the group’s long-term outlook.
As long as management continues to prioritise the development of new treatments, sales should continue to expand in line with the growing demand for healthcare around the world.
Those are the reasons why I think you can retire on the GSK share price. Today, you can buy the shares for just 14.8 times forward earnings, a discount of approximately 10% of the UK pharmaceutical sector.
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Rupert Hargreaves owns no share mentioned. The Motley Fool UK owns shares of and 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 2019