Glaxo: Bold Moves in Big Pharma

04/29/2016 7:00 am EST

Focus: STOCKS

Bryan Perry

Editor, Cash Machine, Premium Income, Quick Income Trader, Instant Income Trader

Big pharma stocks can be great additions to one’s portfolio, especially during turbulent economic environments; they tend to fare well even in the worst of times due to the nature of their underlying businesses, suggests Bryan Perry, editor of Cash Machine.

Regardless of the politics of certain sky-high prices for specialty therapies, people generally don’t stop buying medicine simply because the economy isn’t doing well.

The big risk for most blue chip drug companies that pay out attractive dividends is patent expirations for top-selling drugs.

To that end, GlaxoSmithKline (GSK) has caught my attention of late. The company has been dealing with the expirations of its top-selling asthma medicine, Advair, and its lipid-lowering drug, Lovaza.

Making matters worse, Glaxo’s clinical pipeline also has disappointed investors lately -- especially in the realm of oncology, where the drug maker’s once highly touted cancer vaccine, MAGE-A3, failed multiple late-stage clinical trials.

The good news is that Glaxo has taken bold steps to reshape its future, including brokering more favorable reimbursement terms with US payers for some of its most important respiratory products.

In addition, the firm swapped its oncology unit for a stake in a vaccine portfolio with Novartis (NVS) and entered the HIV market via a joint venture called ViiV Healthcare. In all, Glaxo’s management seems to have steadied the ship for the most part.

Fourth-quarter results came in ahead of Street estimates and revenues are expected to climb by a respectable 3%-4% for the current fiscal year.

Shares of Glaxo appear to have bottomed. The stock has reversed up through the long-term downtrend line -- fueled by the fourth-quarter upside surprise and spin-off to Novartis.

Money flow has turned up and the really good news is that at its current price of $43.20, the dividend yield is 6.05%.

I my view, Glaxo is just the ticket for many conservative investors seeking the non-cyclical nature of the prescription drug business.

Those investors also gain the benefit of a world-class franchise name such as Glaxo at a steep discount to its previous highs. This is a solid name at a great entry point for our Safe Haven model portfolio.

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 By Bryan Perry, Editor of Cash Machine

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