Now that the midterms are over, investors have a bit more clarity over what’s coming. The United States now faces a divided government. For investors this means nothing, literally nothing. Because Democrats control the House and Republicans hold the Senate, there’s total gridlock. When nothing gets done businesses can plan strategically for 2 years without many surprises. Also, as Republicans held the Senate, the possibility of a socialist administration in 2020 is in doubt. Finally, I recently completed the various renovations to my new house. This gives me more wiggle room to ramp up my purchases.
I therefore went ahead and bought 50 shares of GSK and nearly doubled my stake in MMM. I’ve explained my reasons for purchasing 3M in the past. In this case, I saw an opportunity to average in at $200 instead of the $250/share price a few months ago. In contrast, I invested in another healthcare stock (GSK). GlaxoSmithKline specializes in the research and development of drugs, vaccines, and consumer healthcare. They’re similar to JNJ in many ways but offer a different product portfolio. Because drug patents expire, I believe its important to have a broad range of healthcare stocks. GSK also does business in the consumer sector. For instance, I use their Sensodyne toothpaste. Sensodyne is an innovative product that caters to consumers who are allergic to SLS or have sensitive teeth.
GSK has had a strong track record with its vaccine business. Q2 sales increased by 5% largely due to a double digit increase in vaccines. This performance was driven primarily by Shingrix. This blockbuster vaccine alone is projected to do $1.5+ billion in annual sales. Overall, GSK has a reasonable debt level, a 4.8% dividend, and diverse product lines. Sales have been rising the past few years but took a hit over the last decade. As mentioned earlier, patent expirations and generic competition erode drug profitability over time. However, the company has shown its resilience as it continues to develop blockbuster drugs and vaccines.
Between the two stocks purchased, 3M is the growth stock with the better track record. Even so, 3M somewhat depends on the state of the global economy. On the other hand, GSK is the safe, non-cyclical play. No matter what happens with the economy, consumers need to spend money on drugs and vaccines. GSK has less growth drivers but offers high current income (4.8%). The company also appears insulated from Brexit and U.S. political turmoil. This month was sort of a two-for-one deal. I typically only make one purchase a month. This just appeared to be a fantastic opportunity to pick up two great companies at bargain prices. Both companies also offer global exposure and room to further tap into emerging markets.
DISCLAIMER: I am long on MMM and GSK. I am not a licensed investment adviser or tax professional. I am not liable for any losses incurred by any parties. This blog should be viewed for entertainment and/or educational purposes only. Any transactions published are not recommendations to buy or sell any securities. Please consult with an investment professional before making investment decisions.