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Why Forgettable Pfizer Really Is A Great Value Play

So, who in his or her right mind would want to invest in the Rodney Dangerfield of Big Pharma stocks? Namely, Pfizer.

Oh, it has seen its glory days—in the rearview mirror. The home of cholesterol reducer Lipitor and impotence remedy Viagra, it has suffered as those hit products come off patent with no big blowout drugs to replace them. Profit and revenue growth have been static for a while. The stock is down by 22% since its 2018 all-time high, and as of Friday’s close, off 7.6% for 2020.

Wall Street has been worrying that the firm is out of ideas and is slimming down as a result. In 2026, the company will begin losing patent protection on five more of its drugs over three years. Plus, it is spinning off its generic unit, Upjohn, which will merge with Mylan. And Pfizer is eyeing a sale of its consumer product businesses, such as Advil and Chapstick.

One reason to buy Pfizer stock is its lush dividend yield of 4.25%, more than double that of the S&P 500. Another: It is cheap, changing hands at a price/earnings ratio of just 14.4, at a time when the broad-market index is some 14 percentage points higher. OK, buying a high-dividend, low-multiple stock is far from exciting, especially when hot tech stocks are climbing ever-higher (or were till the September downdraft).

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But then, consider Pfizer’s coronavirus vaccine. The drug giant has allied with a small-ish German biotech, aptly named BioNTech, to come up with an immunization serum. Certainly, Pfizer and its partner have competition, from two U.S. firms—fellow pharma behemoth Johnson & Johnson and smallish biotech outfit Moderna—and Britain’s AstraZenaca. 

All four are moving into late-stage trials with their experimental vaccines. J&J turned heads last week with an announcement that recipients would only need one shot instead of two and that its vaccine didn’t need to be stored in a frozen state. On the other hand, Pfizer and Moderna both have reported positive interim results from their vaccine candidates among the elderly, a large at-risk group.

With a lot about the virus still unknown, picking vaccine winners here is hard. But analysts widely expect that more than one vaccine will be approved. Pfizer indicates it is poised to move into mass production. Unlike the trio of rivals, the company says it could have initial results from human testing as early as the end of October.

If the Food and Drug Administration approves the drugmaker’s vaccine candidate, then, Pfizer says, it can produce up to 100 million doses by December this year and perhaps more than one billion doses by the end of 2021. Meanwhile, Pfizer does retain an array of drugs that generate deceny growth, if not quite that of the old Lipitor and Viagra. Prominent among them are cancer drug Ibrance, pneumococcal vaccine Prevnar 13 and immunology indication Xeljanz.

Thus, because of those factors and the promise of a virus vaccine, Pfizer stock is worth buying. It is cheaper than the other the other three: Pfizer’s 14 P/E compares favorably to J&J’s 26 multiple and AstraZeneca’s 68. Profit-less Moderna has no P/E.  And with a dividend yield of 4.25%, Pfizer’s payout is superior: Johnson & Johnson’s is 2.8%, AstraZenaca’s is 2.6% and Moderna issues zero dividends.

Bottom line is that Pfizer is a value stock that shows signs of possessing what good value plays should: A good chance to soar anew.

Source: Forbes – Money

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