Take a Shot on Pfizer

After watching its stock price collapse in half from the Covid-19 peak, Pfizer started to look interesting earlier this year. Through our experience, buying stocks that no one else wants to own is the best way to consistently make money over time. Pfizer looked like a good contrarian idea worth researching.

Vaccine revenues were (and still are) overshadowing the rest of the business. If you were to look at the headlines and nothing else, you would read:

• “Pfizer’s revenue falls 20% compared to the year before”, or
• “Pfizer’s earnings per share collapses 33%”. 

The headlines, albeit accurate, include the Covid-19 vaccines that are being phased out. 

Pfizer’s future is in oncology. In 2023, Pfizer paid $43 billion to acquire Seagen, a company that specializes in cancer medications. Sadly, one-third of people will be diagnosed with cancer at some point in their lifetime. Pfizer’s medications will help cure as many people as possible. With its Seagen acquisition now complete, Pfizer has 8 potential blockbuster drugs expected to add $20 billion in new revenue by 2030. For perspective, the company generated $58 billion in total revenue in 2023. Once approved by regulators, these new drugs will grow Pfizer’s sales by almost 34%.

There’s also a weight-loss pill in the works. Encouraging data from an early-stage trial has prompted Pfizer to conduct more studies in the second half of 2024. If the pill is successful, it would expose the company to the rapidly growing and soon-to-be $100 billion weight-loss market.

Anyone concerned that the lucrative dividend, which accompanies a 6% yield, is at risk of being cut shouldn’t fret. In a recent quarterly conference call with management, the CEO said, “the dividend is a sacred cow for us”. In fact, one of Pfizer’s main capital allocation priorities is to not only maintain but also grow its dividend over time. Even if the stock price never moved a penny from here, shareholders would double their money every 12 years just on those dividend payments alone.

We bought shares for suitable client portfolios last March. The purchase price was about $27.39/share. Today, it trades just below $30/share. With the dividend, our clients have made about 12% over the last four months. Wherever possible, we bought the stock in a registered account to avoid any withholding taxes that accompany dividend payments from foreign securities. 

Pfizer’s stock is extremely undervalued. We expect management to improve its valuation multiple by successfully bringing new oncology medications to market. As the company continues to invest in their research and development, new solutions to tomorrow’s medical problems will benefit the company, its shareholders, and patients.