Stocks For The Long Run: GlaxoSmithKline vs The FTSE 100

Published in Company Comment on 19 November 2012

How has GlaxoSmithKline (LSE: GSK) performed against the market?

If the long-run return on the market is 9.4% (as researchers at Credit Suisse say), investing in shares should be a no-brainer. Somehow, however, all too often our portfolios don't seem to reflect that attractive performance.

This is partly because that 9.4% number is an average derived from 100 years of data. Picking various time periods within that 100 years gives very different outcomes -- and the market almost never actually returns 9.4% in any single year.

Needless to say, unless you're holding a market tracker, your portfolio could have dramatically different results than what the market experiences. If you own a disproportionate amount of winning shares, your returns could be significantly better than the market. On the other hand...

In this series of articles, I'm looking at how individual shares have performed against the FTSE 100 (UKX) during the past 10 years. Today, I'm assessing pharmaceuticals giant GlaxoSmithKline (LSE: GSK) (NYSE: GSK.US).

Over the last decade, GlaxoSmithKline's performance has trailed that of the FTSE 100.

GlaxoSmithKline price

Source: S&P Capital IQ

Perhaps not surprisingly, GlaxoSmithKline's performance over the past decade has been similar to that of AstraZeneca's (LSE: AZN), returning an annual average of 5.2%. Both of the pharma giants have failed to keep pace with the FTSE 100's average return of 7.2%.

Unlike Astra, however, Glaxo has consistently been priced above the market. Apparently, investors have had more confidence in the company's pipeline and perhaps appreciated the diversification offered by Glaxo's vaccine and non-prescription healthcare products.

GSK PE

Source: S&P Capital IQ and Thomson Reuters

Unlike Astra, Glaxo has already gone through most of its patent cliff -- its high-priced blockbuster drugs have already lost their patent protection and now face heavy competition from cheaper generics -- and moved on to the next generation of big sellers. At the same time, Glaxo has been working to build its presence in emerging markets where prices may be lower but growth is significantly higher.

So is GlaxoSmithKline a superior investment compared to AstraZeneca or the FTSE 100? The market seems to like it better than Astra, but Glaxo still offers a 5.5% dividend yield so could be attractive to income seekers.

Large caps for the long run

If GlaxoSmithKline isn't for you, you can always consider the eight large caps for the long run spotlighted in "Super-Investor Neil Woodford's Favourite Blue Chips". This exclusive Fool report evaluates the FTSE shares the legendary index-trouncing investor is backing today, and the investing logic behind them.

You can read all about the potential long-run winners Mr Woodford currently favours by downloading the exclusive report today -- it's free!

> Nate does not own any share mentioned in this article.

Share & subscribe

Comments

The opinions expressed here are those of the individual writers and are not representative of The Motley Fool. If you spot any comments that are unsuitable hit the flag to alert our moderators.

giveaholic 19 Nov 2012 , 6:56pm

There is no useful or incisive content in this article.

jackdaww 19 Nov 2012 , 7:24pm

yes - not much there.

richjfool 20 Nov 2012 , 3:59am

Yes, it would have been nice to have had a conclusion.

Most of these articles nowadays seem to waffle around and then move on to what Neil Woodford might be investing in. If readers wanted to know that, I would think they would be looking at Woodford's products, such as the Edinburgh Investment Trust (currently 22nd out of 23 in terms of past performance over 1 year).

This article doesn't even mention that the Edinburgh IT has Glaxo as its largest holding.

I don't doubt that Woodford will be grateful for the free publicity he gets from Motley Fool.

In fact I wonder why Motley doesn't change its name to Motley Woodford!

Excel35 20 Nov 2012 , 9:15am

Most if the article is duplicate content, intro same as the AZN article, ends with usual Woodford sales pitch.

Weak, rushed out content for the sake of it.

Just think, we can expect them to do virtually every Ftse 100 stock in this format now.

Please someone at the Fool, buck your ideas up.

jackdaww 20 Nov 2012 , 9:18am

i just go to the articles with most comments - it the comments that provide the good info.

so i spend less time on the site - so tmf loses out.

Excel35 20 Nov 2012 , 10:02am

People don't seem to comment as much as they used to, unless to criticise the errors in the articles or there general poor quality, and of course, especially the constant Woodford references.

Although,TMF obviously don't care about the Woodford aspect, many members have complained and yet they still stuff as many articles as possible with Woodford.

goodlifer 20 Nov 2012 , 10:08am

Yes, these days I don't normally bother to read the articles - except Mr Blands'
I just go straight for the comments.

TheHowler 20 Nov 2012 , 10:31am

Agree with the sentiments above. Since the daily email has gone and the emphasis has shifted to superficial analysis of companies, there has been a marked reduction in comments. Like others I find the comments the most interesting and useful sections anyway, but the quality of articles was higher in the past.

If MF is claiming to be a serious investment platform then it needs to increase the length of articles, write with more incisive analysis and replace quantity with quality.

Finally the constant plugging of Woodford IS becoming tedious, even if it did at first make a nice change from the constant Buffet advertorials. If you do have a financial incentive to do this you should state this clearly every time you promote his funds.

Excel35 20 Nov 2012 , 11:42am

"If you do have a financial incentive to do this you should state this clearly every time you promote his funds."

I agree!!!!!!

goodlifer 20 Nov 2012 , 2:32pm

And what about poor Mr Woodford himself?
His ears must have third-degree burns.

sludgesifter 20 Nov 2012 , 2:50pm

Most followers of this site would probably agree with the general drift of the comments above, as I do. But please, fellows, go easy on hammering the advertorials: they help to pay for the site; and I don't think we consider it so poor that we'd want it to close.

Having fewer articles would be quite acceptable if those left told us something we didn't know already. If that's hard to do with big companies, there are plenty of potentially interesting smaller companies.

Excel35 20 Nov 2012 , 3:11pm

I like this site, however, I liked it more in the past. I personally give feedback/criticisim so the Motley Fool can use it and hopefully take comments/sentiment on board and make improvements for the future (hopefully). :)

goodlifer 20 Nov 2012 , 3:29pm

And another thing.

None of you Foolish expert ever condescends to answer these criticisms, or even to explain precisely why they think Mr Woodford deserves to be canonised.

Why not be the first, Mr Weisshaar?

GoldenSoldier 20 Nov 2012 , 4:36pm

I agree with most of the above comments, but what I find most objectionable is the choice of a 10 year period for GSK. If one chooses an 11 year period, then the performance of GSK is abysmal.

However it is bcause it has been so abysmal, that it might now make sense to buy it.

Join the conversation

Please take note - some tags have changed.

Line breaks are converted automatically.

You may use the following tags in your post: [b]bolded text[/b], [i]italicised text[/i]. All other tags will be removed from your post.

If you want to add a link, please ensure you type it as http://www.fool.co.uk as opposed to www.fool.co.uk.

Hello stranger

To add your own comment, please login.

Not yet registered? Register now.