GlaxoSmithKline(LSE: GSK) (NYSE: GSK.US) is a great stock for any portfolio. Indeed, the company has all the best qualities you could ask for a high dividend yield, attractive valuation healthy balance sheet, dominant market position and a reliable cash flow.
At present, Glaxos shares support a dividend yield of 5.1%. The company trades at a forward P/E of 16.9, which may seem high, but Glaxo trades at a significant discount to its international peer group.
Lacking growth
Still, one thing Glaxo lacks is growth. The companys earnings per share are set to fall 5% next year and City analysts expect the company to report moderate EPS growth of 5%during 2016 nothing to get excited about.
Thats whereSkyePharma(LSE: SKP) comes into the picture.Skye has worked with Glaxo in the past. Some of the companys key technologies are designed to help the delivery oforal and inhalation pharmaceutical products.
Glaxo is a specialist in oral treatments. The global pharma group currently produces two treatments thatuse technologylicensed by Skye. Skyes royalty payments from these treatments are capped at 9m per annum.
Rapid growth
While Glaxos glacial growth rate may put some investors off, Skyes most attractive quality is the companys projected growth rate. City analysts expect the companys earnings per share to expand at a high single-digit rate over the next three years, as sales of the companys key products continue to expand.
In particular, Skye has launched eight new products in the past three years and several more are still in the pipeline. These includeSKP-2075, for chronic obstructive pulmonary disease andSoctec, a concept for a novel, proprietary gastro-retentive drug delivery platform.
Skye is also pumping cash into research and development. R&D spending totalled 0.5m during 2013 but then jumped to 4.5m for fiscal 2014 and is expected to hit 10m during 2015. With a strong pipeline of treatments under development and more cash being devoted to R&D spending, Skyeis charting a course for rapid growth over the next decade or so.
Unfortunately, with such bright growth prospects, Skye isnt cheap. The company currently trades at a forward 2015 P/E of 15.2, falling to 14.4 during 2016.
Nevertheless, Skye deserves a premium valuaion and I wouldnt rule out a bid from a large peer, like Glaxo, in the near future.
Foolish summary
So, if youre looking for a dynamic growth and income pharma duo for your portfolio, Glaxo and Skye look to be the perfect combination. While Glaxo offers income, Skye is growing rapidly and the companys increasing R&D budget will only serve to drive further growth in the future.
However, before you make any trading decision I strongly recommend that you do your own research — you may come to a different conclusion.
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Rupert Hargreaves owns shares of GlaxoSmithKline. The Motley Fool UK has recommended GlaxoSmithKline. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.