Is Neil Woodford wrong about British American Tobacco plc and GlaxoSmithKline plc?
British American Tobacco has expanded quickly over the past decade, and when it completes the acquisition of peer Reynolds American, the company will be the largest tobacco company in the world. By acquiring Reynolds, British American has absorbed the last easy growth opportunity available to it, now opportunities for growth through acquisitions are virtually non-existent. GlaxoSmithKline currently yields 5.3% and the shares trade at a forward P/E of 13.3. Based on this valuation, the company looks attractive as an alternative to British American, even though Woodford has turned his back on the business. Indeed, as noted above, shares in Glaxo are currently trading at a forward P/E of 13.3, 26% below the global pharmaceutical sector median valuation of 18. Overall, while British American looks as if it is running out of puff, Glaxo still appears to offer value for investors, even though Neil Woodford is skeptical about the firm's outlook.