When comparing pharma companies, Pfizer Vs GlaxoSmithKline stock, is a big question. Which is the better investment option?
Let’s first understand pharma investing. Some investors steer clear of pharma altogether because of its inherent volatility.
The stock swings following FDA approvals or denials can be significant, catapulting stocks to the moon or crushing them to oblivion it seems.
It’s true that the values of pharmaceutical stocks can change dramatically within a short time. Even well-established companies like Pfizer and GlaxoSmithKline can look risky to some investors.
The Pros of Investing in Pharma Stocks
Volatility scares some investors, but it often peeks the interest of day traders who want to buy and sell stocks quickly.
Big stock movers create opportunities to enter and exit in a hurry. For example, GlaxoSmithKline stock fell to $28.49 on March 23, 2020. By the end of April, the stock had added nearly $10 to its value, peaking at $38.33 on April 27.
An investor savvy enough to buy 100 shares of GlaxoSmithKline on March 23 and sell them on April 27 would earn $984. That’s an impressive, fast return!
Of course, buying the low is asking a lot. The real consideration when investing in pharmaceutical companies is anticipating its pipeline of new drugs, and having a good sense of which ones will be approved and successful in the market place.
If history is any indicator, the share prices of pharma companies are more likely to trend upward for the foreseeable future as researchers develop treatments for health conditions like COVID, high cholesterol, cancer, and autoimmune disorders.
The Cons of Investing in Pharma
When owning these pharma companies the danger is what happens when the drugs that were so costly to develop no longer enjoy patent protection.
When the pipeline of new drugs dries up because research has failed to make breakthroughs.
And what happens when competitors steal market share?
Certainly, share price volatility can produce lucrative returns after FDA announcements. But investors need to be savvy about which strategies could be risky or lucrative. Hedging is often warranted when trading pharma companies.
Looking at GlaxoSmithKline stock shows where a miscalculation could hurt an investor severely.
GlaxoSmithKline stock reached a five-year high at $47.89 on January 17, 2020. The stock’s value had been growing over the previous year. If an investor waited too long and bought GlaxoSmithKline on January 17, that person made a big mistake.
Immediately after reaching this high point, the stock’s value plummeted. By March 23, an investor who purchased 100 shares of GlaxoSmithKline on January 17 would have lost about $1,940. Holding on to the stock would lead to recovery. Frightened investors, however, don’t always make wise decisions.
Another risk comes from acquisition and mergers. Pfizer and GlaxoSmithKline merged their consumer healthcare divisions in 2018. News of the upcoming merger improved the stock price of Pfizer. Concerns, though, contributed to lower prices for GlaxoSmithKline.
By the summer of 2019, both companies returned to their pre-merger values. It would have been very difficult for most investors to determine the right company to back and when to buy the stock to maximize returns.
Is GlaxoSmithKline Stock a Buy?
When you look at the products made by GlaxoSmithKline, you can’t deny the company’s importance.
GlaxoSmithKline makes vaccines for a wide range of conditions, including HPV, tetanus, hepatitis, seasonal flu, measles, mumps, and chickenpox. Those vaccines provide a steady stream of income that helps keep the company profitable.
Glaxo’s $5 billion acquisition of Tesaro is evidence of the company’s new strategic focus to rise up the quality curve by adding businesses with higher margins, while offloading lower quality businesses like its GSK Consumer Healthcare business.
The company’s commitment to research and development could lead to higher values in the future. Any breakthrough in treatments for HIV, cancer, infectious diseases, and respiratory ailments could make the company extremely profitable while slowing the spread of illnesses.
Financially, Glaxo earns over 20% of its revenues from vaccine sales but earnings are not expected to grow this year. This is primarily due to expected increases in investment in research.
The company expects to save as much as $3 billion by dividing research more efficiently between vaccines and pharma.
From a price perspective, GlaxoSmithKline has a higher price than Pfizer, but it still has an affordable price for smaller investors that hasn’t gone above $50 in more than a decade.
Should You Invest in Pfizer?
Like GlaxoSmithKline, Pfizer makes a lot of products that provide reliable revenue streams. Some of the company’s most recognizable patented drugs include Lyrica, which treats neuropathic pain, Xeljanz, a treatment for rheumatoid arthritis, and Prevnar, a vaccine for pneumococcal disease.
Pfizer also makes a long list of generic drugs, including sertraline (Zoloft) and atorvastatin (Lipitor).
While generic drugs don’t make as much money as patented drugs, manufacturing them shows that Pfizer wants to participate in providing a large stock of essential medications. Doing so helps improve the company’s bottom line, distribution, and brand awareness.
Pfizer’s low price makes it an easy option for all investors. The stock’s price has come close to $50, but it has never actually hit that mark.
While a low price may sound like a bad thing for investors, it’s important to remember that day traders need to focus on fluctuations. A $10 fluctuation makes you the same amount of money, no matter how much the stock costs. If you don’t have a lot of money to invest, Pfizer may be a more affordable option.
Pfizer Vs GlaxoSmithKline Stock: The Bottom Line
Pfizer has enjoyed top line growth as well as a huge $12 billion cash infusion from its spin-off of Upjohn. Unlike so many companies that use cash hoards to buy back stock, Pfizer is wisely paying down debt with its cash ballooning.
GSK is also spinning out its GSK Consumer Healthcare division, which should save on costs to the tune of nearly a billion dollars. It also is exploring the sale of its antibiotics business.
The bottom line is Glaxo is moving up the quality curve by offloading lower quality businesses that should save on costs while acquiring higher quality businesses like Tesaro.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.