Glaxo SmithKline: "Steady as She Goes"

01/28/2020 5:00 am EST

Focus: HEALTHCARE

Joe Duarte

Editor, Joe Duarte In the Money Options

The stock market may continue to make higher highs on a regular basis as long as the Federal Reserve continues to pump money into the Repo markets, forecasts Dr. Joe Duarte, editor of In the Money Options.

But, this rally can’t and won’t last forever, especially if the U.S. economy does not pick up speed, corporate earnings don’t dazzle, and if the bond market decides to sell off and kill the housing rally.

As a result, this is a good time to evaluate each individual position one owns and to truly ask whether it is worth owning. It also makes sense to consider adequate exit points in case things get ugly in a hurry.

If the market corrects investors will be looking for places to hide, which is why shares of pharmaceutical giant Glaxo Smithkline (GSK), which offer a 4.3 percent annual dividend may come in handy.

Glaxo’s shares have climbed steadily over the last twelve months as the company is succeeding in its to bid reinvent itself into a big time contender in the top tier of cancer fighting big pharma companies, while not abandoning its diversified drug portfolio and its focus on other disease areas such as its rapidly growing shingles vaccine Shingrix.

Moreover, at the recently held JP Morgan Healthcare conference in San Francisco, management was clear about one thing; they are not in a hurry to make bad deals or to develop new oncology meds that they can’t fit into their steadily increasing pipeline. Instead, they stressed balance and value.

This is significant because GSK was out of the cancer business until recently when it bought biotech oncology company Tesaro but has quickly integrated Tesaro’s portfolio into the fold profitably.

Since then, GSK has expanded its cancer treatment unit based on the surprising success of Tesaro’s Zejula, a drug which had lots of doubters but has actually exceeded expectations in the treatment of ovarian cancer including recently grabbing FDA approval for expanded uses.

Now, by leveraging the success of Zejula, Glaxo is hopeful for FDA approval of a cancer treatment for multiple myeloma and one for uterine cancer.

In addition the company is looking for approval of the three other new drugs, one for asthma, a combination of two drugs for HIV treatment, and a third drug aimed at the chronic anemia of renal failure.

Importantly, the company’s CEO since 2017, Emma Walmsley who has spearheaded an extremely credible turnaround of the company, recently noted that there are no plans to scrap or reduce the dividend at any time in the near future, which means that if the market rolls over, GSK’s dividend will be attractive to yield seeking investors and the stock should exhibit some relative strength.

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