One of Warren Buffetts famous investing sayings is be fearful when others are greedy and greedy only when others are fearful. Or, in other words, sell when others are buying and buy when theyre selling.
But we might expect Foolish investors to know that, and looking at what Fools have been buying recently might provide us with some ideas for good investments.
So, in this series of articles, we look at what customers of The Motley Fool ShareDealing Service were buying in the past week or so, and explore what might have made them decide to do so.
Heading in the right direction
Since a slight slump in the first week of August, the share price of GlaxoSmithKline (LSE: GSK) (NYSE: GSK.US) has risen 5.7% not bad in just three weeks.
Mind you,thepharma giant has still lost close to 10% in value so far this year. But perhaps the recent rise was enough to convince some people that Glaxos share price is now heading in the right direction again.
Whatever the case, enough people bought Glaxo last week to put the company in the number 1 spot in our latest Top 10 Buys list*.
Generating growth
Perhaps they were persuaded by Glaxos pipeline of potential products. After all, it was less than a year ago thatanalyst-house Morningstar rated GlaxoSmithKlines product pipeline the best of 11 leading pharmaceutical companies.
That pipeline has already started to deliver. Glaxorecentlylaunched new products in two main therapeutic areas:BreoandAnoroinrespiratory and TivicayHIV, saying thatuptakeof the latter has been very strong.
And there should be more to come before too long in July Glaxo said that it hadover 40 candidate products in late stage development. And what comes could well be very lucrative Glaxo also saidthat30 of its R&D assets have the potential to be first class in a range of therapeutic areas.
Of course, not all of the candidate products will make it to market even the most promising treatments can fail in trials at the last minute. But with such a large and diversified pipeline Glaxo should be well placed to generate growth.
Indeed, analyst forecasts suggest therell be around 11% earnings growth in 2015, resulting in earnings per share (EPS) of 106p. Thatd put Glaxo on a forward price-to-earnings ratio of 13.7, just abovethe current sector average of 13.3.
Main attraction
One of the main attractions of Glaxo has always been its dividend, and nothings changed there. If anything, its got more attractive of late Glaxoscurrent yield is a massive 5.7%, which is way ahead of the FTSE 100 average, plus there willbe a substantial one-off return of cash next year, the proceeds ofGlaxos recent deal with Novartis.
Maybe a 5.7% yield seems a bit too good? Perhaps itll have to fall. Given Glaxos commitment toyear-on-year dividend growth, if the dividend has to fall, the share price shouldrise to even things out.If the yield were to drop even just to 5% next year, and Glaxo pays out the 84p estimated by analysts, thatd give a share price of 1,680p a rise of 15% from todays 1,460p.
But, of course, whatever other people were doing last week, only you can decide if Glaxo is a buy right now.
Reliablereturns
It’s GlaxoSmithKline’s long-term potential for reliable income generation that’sgained it a place inThe Motley Fool’s “5 Shares To Retire On” report, along with four otherquality companies for the long-term– companies that have an outstanding record of providing reliable shareholder returns.
If you want to know which othertop-quality share selectionsour team of expert analysts here at the Motley Fool believe could form the basis of a long-term income-oriented portfolio, you should get hold ofyour FREE copyof the report rightnow. There’s no further obligation.
Jon Wallis 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.
*based on aggregate data from The Motley Fool ShareDealing Service.
*based on aggregate data from The Motley Fool ShareDealing Service.
