Pharmaceuticals: Pfizer Is a Buy

The accompanying table presents an overview of big pharma companies, presented in descending order by market cap. My favorite play in the space remains Pfizer (PFE), which I have written about previously and finally bought shares of yesterday at $17.90 with a dividend yield exceeding 7%.

Despite growth concerns and looming generic competition for Lipitor in late 2011, I bought shares of Pfizer yesterday as a value pick and turnaround play which operates in a defensive sector with a strong balance sheet. Also, the company is aggressively cutting costs and buying back its shares on the open market.

Despite weakness in most of the 14 big pharma stocks presented on the table, it is unlikely that any will be lobbying Congress for subsidized loans or be the next big Wall Street firm to fail given their strong balance sheets and the necessity of their products to many people.

The only companies posting stock price gains over the past year include Abbott Labs (ABT), Johnson & Johnson (JNJ), and Teva Pharma (TEVA) with an average loss of 15.6% for the entire group.

I like Pfizer as a turnaround value play since its 7% dividend yield is twice the group's average and it also trades at a discount to the average price-sales ratio [PSR] and forward price-earnings [PE] ratio for the group.

 

Comments

[Boogins:]

If you had taken the time to explain how they are going to make up for the loss of their income flow from Lipitor your financial analysis might carry some weight. As it is, this smells like an accountants analysis who has no knowledge of the industry.

2008 Sep 25 08:26 AM

[Mike Havrilla:]

Thats why I included link to my previous articles on Pfizer instead of repeating the same thing in this article:
www.google.com/cse?cx=...

2008 Sep 25 08:58 AM

[beabaggage:]

Great value, loaded with cash, cash is king now, who needs a pipeline, the way things are going they can buy anything they want cheaply with all their cash and/or raise more w debt ala Microsoft with their high ratings.
Recently increased marketing for lipitor and chantix will keep things moving up.
Lyrica is the real sleeper in this portfolio, anything that helps with pain is going to be hot. Neuropathy is a painful condition, I have it, and this drug works wonders. Neuropathy via Diabetes is growing problem.
Plus don't forget Celebrex. The pipeline is full of goodies.
So buy buy buy and forget the 0.5% you can get on tbills, collect the div. I bet they raise div to 1.40 too. With earnings of about 2.10-2.20 they coudl afford it. thats makes the wait and see yield about 8%
Long/Buy!

2008 Sep 25 09:08 AM

[beabaggage:]

Sanofi looks good too, good enough fior Buffett to buy into it. nice yield there as well.

2008 Sep 25 09:10 AM

[Stock_doc:]

Pipelines are overrated. No one can predict how a drug will do 5-10 years from now. A promising drug could end up having untolerable adverse reactions and be pulled from the market (i.e. Vioxx, Bextra etc.). A bust drug could end up being an unexpected blockbluster for a completely different condition (i.e. Viagra). In the long run, it all evens out. Pfizer is a good long-term value now with a safe 7% dividend yield and solid balance sheet. In this turbulent market, you could definitely do worse.

2008 Sep 25 12:25 PM

[Tom B:]

Celebrex goes off-patent 2012. PFE stock isn't bottomed yet. On the plus side, post 2012, I think things will start to look up for them.

2008 Sep 25 01:33 PM

[User 269857:]

Why not just buy BMY? The yield is 6% and much better growth prospects.

2008 Sep 25 02:32 PM

[mouth:]

All the majors down except ABT is up WHY are they up? What does the market see. Do they have lots of things in the pipelines?

2008 Sep 25 04:41 PM

[Mike Havrilla:]

Abbott has a more diversified mix of businesses with diagnostics/nutrionals as summarized below from their last earnings report:

-global sales growth of 14.8% to $7.3 billion (B)

-pharmaceutical sales ($4.1B) growth of 16.7% led by Humira (a biological agent for autoimmune diseases such as rheumatoid arthritis), which experienced a 48% growth in sales for 1H08 at $1.1B with a forecast for sales of $4.3 billion for 2008

-medical product sales ($1.4B) growth of 14.7% driven by diagnostics sales ($0.9B) growth over 17%

-nutritional sales ($1.2B) growth of 21.3% thanks to strong results in emerging markets

Abbott Labs reported total sales for the first half of 2008 of $14.1B with $6.5B in the USA and $7.6B internationally. The Company posted a diversified mix of healthcare business units with 56.5% of sales from prescription drugs, 16.5% from nutrional products, 12.5% from diagnostics, and about 6.5% from vascular products such as stents. The Company increased its earnings-per-share guidance from a range of $3.20 - $3.25 to $3.24 - $3.28, excluding specified items, reflecting growth of about 15% along with expected sales growth in the mid-teens for the full year.

2008 Sep 25 05:35 PM

[Tom B:]

Agree on ABT-- solid company. I may add some.

I'm long on CVTX, GILD,RDEA, TEVA, JNJ these days.

2008 Sep 25 09:59 PM

[Kayboe:]

A slug of PFE is owned by the Fairholme Fund. Fund is managed by very sharp, Bruce Berkowitz. FAIRX is a concentrated fund, (up 13.4% annually over last 5 yrs.), and PFE represents over 10% of its current stock holdings. Yeah I own FAIRX and PFE. And I bought more PFE at the end of Monday, crash day, 9/29/08.

2008 Sep 30 03:50 PM