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I went to a ritzy media party the other night in a swank 57th street restaurant. I was fascinated to find out that our host was Pfizer (NYSE:PFE) -- but, then again, they know how to market and how to play every angle from public affairs (in this case) to cholesterol. The largest pharmaceutical company in the world, Pfizer makes everything from Listerine to Neosporin to Sudafed to Luden’s cough drops to major prescription drugs such as Lipitor, Viagra, and Zoloft. It has the best-selling drug in history (that would be Lipitor) and 14 of the world’s 25 best-selling drugs.

This has been an interesting year for Pfizer. The patent on Zoloft ran out in late June and the company chose its counsel Jeffrey Kindler as the new CEO in July. Kindler has since set the company on a course of reorganizing to maximize efficiency and to improve the returns on research and development. It remains to be seen what this does for the company, but investors have seemed happy, and the stock price has climbed from its early July level of $23. I was happy to have one employees recently tell me that he -- and every one else within Pfizer -- loves the CEO even though he is a democrat.

There are plenty of reasons to be optimistic about this company; beyond its perennial best-sellers, Pfizer has a number of new drugs in the pipeline, including Sutent (for oncology) and Lyrica (for epilepsy) and a cholesterol drug that should help lessen the pain when the Lipitor patent runs out in 2011. An FDA panel had a good response to Fragmin, an anti-blood clotting drug, and Champix, an anti-smoking aid, has been approved in Europe, where smoking is quickly losing popularity. Pfizer is developing or acquiring the rights to new drugs all the time, and it has also entered an agreement to sell its Consumer Healthcare division (which makes many over-the-counter products) to Johnson & Johnson (NYSE:JNJ), which should mean a large return in the near future. The company has little debt, high profit margins, and enormous cash flows. Meanwhile, it seems the Medicare drug benefit is increasing overall sales of pharmaceuticals.

But there are also plenty of reasons to be worried. Generic drugs are looming as an ever-greater threat, especially now that Wal-Mart (NYSE:WMT) is selling them in Florida (presumably other states will follow). Lipitor is under a patent challenge; this case is unlikely to succeed but may impact some of Pfizer’s rights, and the drug goes out of patent in a few years anyway. Zoloft is out of patent. Not surprisingly, then, revenue growth has been stagnant for the past couple years. 2005 sales were about 10% below 2004, and the first half of 2006 has been just a bit lower than the first half of 2005. After the initial revenue of the sale to Johnson & Johnson, the loss of these brands will likely hamper cash flow. 5 drugs account for nearly 50% of the pharmaceutical division’s revenues; losing one of these to a generic or patent challenge would be a serious blow.

In the end, size really matters in pharmaceuticals, and I think Pfizer is a good bet if you can get it at the right price, especially with its solid dividend.

Type of stock: The largest pharmaceutical company in the world, with huge revenues and a solid dividend. "Big Pharma" is coming back--it has been a tough 7 years and the rotation back in has begun.

Price target: Pfizer is coming off several solid months of a climbing stock price. The past couple weeks have seen the stock fall off its 52-week high of $28.60. At $25 or lower, I think PFE could be worth buying and holding for a while.

PFE 1-yr Chart

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Source: With Pfizer Bigger is Better