I almost fell over when I discovered that GSK (LSE: GSK) shares were the UK’s most bought stock last week.
GSK accounted for 7.4% of purchases on the AJ Bell investment platform. Rolls-Royce came a distant second with 1.9%, while SpaceX Exploration Technologies (SpaceX) was third with just 1.8%.
The pharmaceutical giant hasn’t exactly been a blockbuster stock lately, and that’s putting it mildly. While the shares are up 30% over the past year, they’re back to levels last seen in 2001. Long-term investors have collected dividends, but that won’t have compensated for the disappointing share price performance. The contrast with high-flying FTSE 100 rival AstraZeneca‘s painful.
FTSE 100 recovery play?
GSK struggled as investors grew worried about its ability to develop new blockbuster drugs to replace medicines losing patent protection, and deliver steady growth.
Second-quarter results (28 July) were well-received, with sales rising 5% to £8.4bn, while core operating profit rose 7% to £2.8bn. Speciality medicines sales jumped 14%, led by oncology, respiratory treatments and HIV medicines. GSK reaffirmed 2026 forecasts and its ambition to generate more than £40bn in annual sales by 2031.
Investors are getting behind new chief executive Luke Miels, who is keen to accelerate drug development and has launched a restructuring programme targeting £1.9bn in annual savings by 2029.
Management’s cutting costs
So why the sudden excitement now? The recent catalyst is GSK’s plan to cut up to 1,217 jobs at its Belgian sites as part of that cost-saving drive. Investors may welcome the prospect of a leaner business, although restructuring is painful and savings aren’t guaranteed.
There’s also encouraging news from its research pipeline. Last month, GSK announced Phase III trial data showing that cancer drug candidate Ris-Rez reduced the risk of death by 54% in patients with relapsed small-cell lung cancer in China. The drug still needs to establish its commercial value in wider markets though.
Last week also saw a broader rally in healthcare stocks, but it’s hard to read too much into that, given that it was a good week for the FTSE 100 generally. Overall, investors appear increasingly willing to give GSK credit for its plans to improve growth and profitability.
Still a gamble
Will the excitement last? The patent cliff remains a constant worry, as key HIV medicines lose exclusivity towards the end of the decade. New drugs may disappoint in clinical trials, face regulatory hurdles or fail to win enough patients. Competition, pricing pressure and US healthcare policy add further uncertainty.
GSK looks reasonably good value, with a price-to-earnings ratio around 10.1, plus a halfway decent dividend yield of 3.86%. Both are at similar levels to two years ago when I bought GSK shares to diversify into healthcare. I’ve been pretty underwhelmed by its progress.
GSK may still be worth considering for diversification, but I’d be tempted to wait to see whether the excitement cools. Right now, I’m more excited by this overlooked FTSE 100 dividend stock that yields a far juicier 7%…
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Harvey Jones owns shares in GSK and Rolls-Royce.
