This large-cap just got bought

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Wealth Accumulated
Hi Accumulators. Every week I publish a newsletter on large-cap value investing, writing in the finance space, and the web. Exclusive to subscribers are a market commentary and a quarterly performance v S&P 500 from my portfolio. Like the sound of that? Get your mitts on a copy: subscribe here.

Disclaimer: D J Thomas has a position in the stock mentioned in this article.
Hello and welcome to the second edition of the Wealth Accumulated newsletter. There were no unsubscribes and the open rate stands at 58%.
The week began with an unanswered question from last week: is this a new bull market or are we in a bear market rally?
Such questions (and their answers) have all the certainty of a Rivian customer’s purchase order.
I mentioned last week that the noise machine of the financial markets can largely be IGNORED.
This week’s edition stays in blissful ignorance of financial market talking heads and their clairvoyance: I’ve bought into a new stock.
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Now onto the markets.
New position: GlaxoSmithKline
GSK: a stock in decline
GSK: a stock in decline
I buy large caps going through a temporary period of turmoil.
This purchase was kinda telegraphed on social media:
Wealth Accumulated
Value investors, we’re built differently.

A headline like this is pure delight

GSK defends Zantac ahead of trials that have wiped off $44 billion from leading drugmakers
https://t.co/PEYZdu02v8
What does Thomas mean by a negative news headline being ‘pure delight’?
It means I’m excited.
Jumping up and down like a chocolate-fuelled child on a trampoline.
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Let’s put this in context.
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GlaxoSmithKline (GSK: LSE) as of yesterday’s purchase was trading at a PER of 11.09, and a dividend yield of 6.54%.
Last year it made £34.1 billion in sales and a pre-tax profit of £5.5 billion.
It has £8 billion in cash and securities.
Last quarter mentions a developed late-stage pipeline and projected sales growth of 6%.
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“This is GSK’s first set of results as a newly focused biopharma company, and we have delivered an excellent second quarter performance, with strong growth in Specialty Medicines, including HIV, and a record quarter for our shingles vaccine Shingrix. With this momentum in sales and operating profit growth, we have raised our full-year guidance and are confident in delivering the long-term growth outlooks we set out for shareholders last year”
Emma Walmsley, CEO GlaxoSmithKline.
Indigestion and big pharma lawsuits
Zantec relieved heartburn.
If it was still available, shareholders would be popping them like candy: a two-day price decline of 15% resulted from mounting legal pressure over alleged cancer-inducing properties of a heartburn product named Zantec.
GSK was forced to stop selling Zantec by the FDA in 2020 citing a potential public-health risk.
“…the FDA said levels of the potential carcinogen in some ranitidine products increases over time, even under normal storage conditions, and that it was found to increase significantly in samples stored at higher-than-room temperatures, including temperatures the product may be exposed to during distribution and handling by consumers”
Here’s more on this story from the Wall Street Journal:
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What’s the market’s motivation for selling?
It is expecting billions in potential payouts from a growing number of lawsuits.
And who can blame them when you consider the 10 largest pharmaceutical settlements in history.
Top 10 Largest Pharmaceutical Lawsuits & Settlement Amounts
Yes, big pharma lie.
They lie a lot.
And GSK is no stranger to it: in 2012 Glaxo settled ($3 billion) on the basis that they made false and misleading statements about the safety of a product.
The ugly truth about big pharma
For them, it’s a simple cost-benefit analysis.
How much can they get away with v how much revenue can be generated.
The odd lawsuit or opioid epidemic is simply the hazards of doing business.
Can GSK afford to pay a settlement of up to, say, $5 billion?
$8 billion?
$10 billion?
It would sting but they could pay it and carry on, business as usual.
Hey, don’t blame me I don’t make up the rules.
Big pharma is an ugly business.
What business isn’t at that level?
Besides as a shareholder, I’ll be punished by losses should things turn out not so okay for GSK.
That’s the risk you take.
Long at £14.35, 16th August 2022.
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D J Thomas
D J Thomas @waccumulated

Hedged thematic large-cap value investing

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