FTSE 100 pharmaceutical giant GlaxoSmithKline (LSE: GSK) has fallen seriously out of favour over the last year. Investors have prescribed a 22% cut in the share price since July, but I'm starting to think this sell-off has gone far enough.
In my view, this is one of a relatively small number of firms whose core assets and brands are too large and valuable to ignore. I believe that any hidden value in Glaxo's portfolio will eventually be realised, even if this takes a little time.
One problem is the group's controversial conglomerate structure, which includes consumer healthcare products, vaccines, and a wider pharmaceutical segment.
Supporters of this structure say that this diversity helps to smooth out earnings growth. Investors who believe the group should be split up say that this diversity may hide inefficiency and result in a lack of management focus.
A return to growth?
I'm starting to accept the arguments in favour of a breakup. Glaxo's pre-tax profit fell from £6.6bn to £1.9bn between 2012 and 2016. Even if we use management's favoured 'core' underlying measure, pre-tax profit fell from £7.3bn to £7.1bn over this five-year period.
This year looks like another flat one. Brokers' consensus forecasts currently suggest that underlying earnings will fall by 3% to 107p per share in 2018.
However, the group's cash generation -- a historic strength -- did start to recover last year, boosting support for the dividend.
On balance, I think the bad news is now in the price, which represents an attractive P/E of 12 and gives a prospective dividend yield of 5.9%. At this level, I believe Glaxo could be a good stock to buy and tuck away.
A surprise income choice
Shares of Daily Mail and MailOnline owner Daily Mail and General Trust (LSE: DMGT) gained around 5% this morning, after the group confirmed its previous guidance for the year ahead.
This stable outlook was something of a relief for investors. The company's last update -- in November -- contained a downbeat outlook for 2018 which caused the shares to crash 25% in one day.
When considering recent trading, it's important to remember that this isn't just a newspaper business. It also operates a range of specialist business-to-business information services in sectors such as insurance, and runs specialist events. These activities now provide around two-thirds of profits.
If we accept DMGT's underlying figures, which have been adjusted for acquisitions, disposals and exchange rates, then trading was fairly positive during the first quarter. Group revenue rose by 2% with gains in all divisions except the newspaper business, where sales fell by 4%, outweighing underlying advertising growth of 2%.
What does the future hold?
Will anyone still be buying printed newspapers in 20 years? Perhaps not. But I'm fairly sure that a profitable model for online news will eventually emerge.
In the meantime, DMGT's B2B information businesses generate the majority of the group's profits and appear to be well positioned for the future.
The stock currently trades on 14 times forecast earnings, with a prospective yield of 3.8%. The group's financial situation seems stable and cash generation remained strong last year. I believe this could be a good long-term dividend buy.
Roland Head has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.