Right off the bat, you must know that its very difficult to go wrong with healthcare stocks, generally speaking. Im not talking about start-up companies, or risky plays, Im talking about well-established, reputable, large medical businesses. One such company is GlaxoSmithKline (LSE: GSK) (NYSE: GSK.US).
In the middle of last year, Chinese authorities announced that in recent years GlaxoSmithKline used hundreds of travel agencies and consulting firms to funnel nearly three billion yuan in kickbacks to GSK managers, doctors, hospitals and others who prescribed their drugs. Did GlaxoSmithKline really think it could get away with this? Who knows the company did, though, raise the white flag and four executives have since been arrested. Thats hurt GlaxoSmithKlines reputation. The good news is that the company is making amends, and its certainly not alone in receiving a slap on the wrist by the authorities. Many of the UKs banks have also been called into the Head Teachers office in recent years. Youd be hard-pressed to find any squeaky clean multinational corporation.
Even better, GlaxoSmithKline whether its because its trying to make amends from its recent indiscretions or not is now very much on the PR front foot, for want of a better term. As recently as last week, the pharmaceuticals company announced it was helping to lead the charge against the outbreak of the Ebola virus in West Africa.
This plays to two key elements of the company:
Firstly, the company does appear to have a social conscience. Thats crucial for its image which is vital when it comes to healthcare companies. GlaxoSmithKline, too, is making obvious attempts to crack health problems in emerging countries. This all speaks well of the management culture (notwithstanding GlaxoSmithKlines recent controversies).
Second, GlaxoSmithKlines research and development budget is massive were talking billions of dollars worth. Why is this important? Well, think of a pharmaceutical companys R&D like a mining companys exploration activities. Its how these companies grow and evolve.
There will only be more and more demand for pharmaceutical products as the worlds population ages. There is also an emerging and growing gap between the worlds rich and poor. GlaxoSmithKline is well-positioned to lead the fight against the health dilemmas that will emerge from both of these issues.
And from a share market strategy viewpoint, healthcare companies the world over have been outperforming in recent years. For instance, if you had been overweight healthcare and consumer staples stocks in the past few years, theres every chance your portfolio would be fatter than it was to start with.
The technical aspect of this stock speaks for itself. For the past five years, GlaxoSmithKline has been in a nice 45-degree up-trend. It was hit hard earlier this year as news emerged that it was facing criminal investigation for its misconduct (on more than one continent). The shares, though, have since rebounded. The healthcare giant has insisted its cutting the cancer out, and indeed says the disease of corruption is not systemic. Maybe thats why its shares are recovering.
The bottom line is that if the company can successfully clean up its act, its a stock market winner. The smart money says it will clean up its act, while recent evidence proves its at least back fighting the good fight.
GlaxoSmithKline is part of a group of heavy-hitters that we Fools think have what it takes to provide you with a reliable income stream a little later in life. We’ve essentially done much of the hard work for you. Now it’s up to you to go shopping and decide what companies you’ll support — companies that we think will actually support you right back.
For some expert analysis and commentary on GlaxoSmithKline, as well as four other mega-healthy companies, click here to read this Motley Fool Special Report. It’s free!
David Taylor has no position in any shares mentioned. 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.