Pfizer Offers Investors An 18% To 100% Return
Summary
- Pfizer is trending higher.
- Price action suggests a potential of $43.
- Investors can make 18% owning the shares or 100% by buying a long-term call option.
Pfizer’s (NYSE:PFE) chart looks like it will get to $43 per share. Investors or traders can take advantage of this setup and potentially maximize the opportunity using options to make as much as 100% return on your investment using long-term options that expire in January 2023. Let’s first review the price action. Then I will detail two ways to take advantage of the opportunity along with the risks and challenges that come with the opportunity.
Chart 1 – PFE Weekly Chart with 10 and 40-Week Moving Averages
Chart 1 shows some interesting developments for PFE. This is a weekly chart showing price along with the 10-week moving average in blue and the longer term 40-week moving average in red. Looking at Chart 1 above you can see that PFE hit a low in March 2020 at $25. It then rallied up to just over $34 in May 2020. Also notice that the 10-month moving average crossed above the 40-week moving average in May.
I consider that to be a bullish development and a bullish trading signal. However it didn’t work that time. Price couldn’t hold that $35 level and PFE fell back to $29 in June 2020. When this happened the moving averages crossed again this time is a bearish manner. The 10-week moving average crossed below the 40-week moving average and I consider this to be a bearish development and a bearish trading signal. The pullback to $29 in June did offer one bullish development. The price drop to $29 is a higher low.
In other words investors weren’t willing to let PFE retest its March 2020 low. Now things get better for PFE investors. PFE rallies to $36 in August 2020 making a higher high. Investors were able to push PFE up above the May 2020 high and that is bullish. Also bullish is the fact that the 10-week moving average crossed above the 40-week moving average. PFE then fell back to just over $31. Again making a higher low.
Now there is a series of lower highs. In other words PFE is trending higher. Another bullish sign is that even though PFE fell back, the 10-week moving average stayed above the 40-week moving average. After the pullback to the $31 area price then rallied up to just under $43. A new higher high. Another bullish development and PFE is trending higher. After that nice move PFE has fallen back to just over $33 in late February. That was another higher low.
Again the 10-week moving average was able to stay above the 40-week moving average which is bullish. Now price has rallied and both the 10-week and the 40-week moving averages are trending higher which I consider to be bullish. From here I think that it’s possible that PFE will rally back to the $43 area if not higher making a higher high. This represents an interesting risk-reward opportunity.
Investors could buy shares of PFE at today’s price. If PFE goes to $43, investors will earn a 18% return plus dividends. According to Seeking Alpha, PFE has a 4.3% dividend yield and the next dividend payout should be in June. If it takes 12 months for PFE to go from its current price to $43 that would be a good return on your money.
Another way to take advantage of this potential move to $43 from its current price is by buying a long-term call option. An option is more risky because it will expire but does offer a higher potential return on your money.
Table 1 – PFE Call Options Expiring January 2023
Source: Yahoo Finance
Table 1 above shows some of the call option contracts available that expire on January 20, 2023. That expiration date is 21 months from now. An option buyer could buy the PFE January 2023 option contract with a strike price of $35 at $3.95. See the not too perfect oval drawn on Table 1 above. If PFE gets to $43 a share anytime between now and January 20, 2023 those PFE January 2023 calls with a strike price of 35 will be worth $8.
That is a return on your money of just over 100%. A 100% return in 21 months is quite good in my opinion. Keep in mind that the option is profitable whenever PFE trades above $39. If PFE gets to $39 before the option expiration date, then the option will be worth at least $4. I like the potential of the long-term calls.
While I do like the potential of the long-term calls obviously, there are risks and challenges with that position. There is no guarantee that PFE gets to $43 per share. PFE has basically been range bound for the last two years spending most of its time below its current price. A call buyer is betting on the move to higher prices and is betting that higher prices come before the option expires. It is a challenge to be right on both accounts.
PFE could stay range bound or even decline in price from here for any number of reasons such as problems with its COVID vaccine, lawsuits, a quarterly earnings miss, investors preferences for other stocks, etc. There is real risk with buying a call option on PFE. The option could expire worthless if PFE doesn't get to $39 before expiration. There is much less risk with owning the shares outright. Shareholders received the attractive dividend and do not have an expiration date on their shares. They can simply wait for PFE to move higher from here. However, because there is less risk, there is also less reward.
In summary, PFE has demonstrated bullish price action since the March 2020 low at $25 per share. PFE has trended higher making a series of higher highs and higher lows. This is bullish price action. The 10-week moving average is above the 40-week moving average and both of those moving averages are trending higher as well. That is bullish in my opinion. The next step in this price action progression would be a higher high eclipsing $42 per share.
How long that can take is anyone’s guess. One way to take advantage of this bullish opportunity is to buy shares of PFE which offers an 18% return plus dividends. Buying the shares outright allows you to receive the dividends and owing the shares outright doesn’t come with an expiration date. You can patiently wait for PFE to advance in price. A second way to take advantage of this bullish opportunity is buying a long-term call option such as the PFE January 2023 35 Call.
The risk is the expiration date and the fact that your investment could expire worthless. However, those options have 21 months to work out for the option buyer. That is more than a reasonable amount of time for PFE to continue its move to $43. The opportunity to get a 100% return in 21 months is reasonable in my opinion. Buying the January 2023 35 Call is the way I would speculate on Pfizer’s price move to $43 from its current price.
This article was written by
Analyst’s Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in PFE over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
I own the PFE January 2023 35 Call
Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.
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Comments (112)
WZ
and now you have sold a solid dividends payer with potential,you buy what??
I just collect the Rent, I keep the building.
POW is a good alternative.
Power Financial.
WZ
At around the time this article posted I bought several $37 calls (expiring 1/21/22 @ 1.65)
Up 132% to date. I intend to bail when PFE starts touching $40+Tempted to bail around PFE $42 but don't want to get too greedy.
WZ
A third shot means a 50% increase in sales, right?
People manage their careers,not their jobs.
I spent a few years as part of Pfizer,was not impressed,lacks dynamism,like the Federal Government.
2. Buy equal contracts Leap call 2023
3. Sell deep in the money Leap put 2023. to save some theta
4. Worse case, you own the stock again (!) in 2 years.
5. Use the proceed to invest somewhere else
"1. Sell all $PFE stocks
2. Buy equal contracts Leap call 2023
3. Sell deep in the money Leap put 2023. to save some theta" Have you heard of a Poor Man's Covered Call? You are half way there.1) Buy deep in the money LEAPS calls (with a delta =>.80) The extrinsic value portion of the premium costs pocket change a day.
When the LEAPS only has 90 days left until expiration, roll it out to another year or more. I chose 90 days because the last 90 days has the greatest rate of time decay. You don't have to let it expire and own the stock if you don't want to.2) SELL weekly out of the money covered calls (with a delta <=.30)
The weekly income lowers the cost basis of the LEAPS.
IF the covered call is in the money on expiration day, don't let it expire, roll it to an otm strike, with a further out expiration to earn a net credit.3) The LEAPS acts like a synthetic shares of stock. Brokers allow you to sell covered calls against it. 4) You earn money in two ways with a PMCC.
a) Selling weekly covered calls against the LEAPS, earns weekly income.
b) As the underlying stock rises in value, so does the LEAPS. You can roll it at 90 days, to continue the growth. OR you can sell it for a tidy profit.5) The PMCC reduces the risk from bankruptcy. If you own the stock and it goes bankrupt, you lose the full value of the stock. With a PMCC you choose the amount you are willing to risk, which is usually less than half the amount of owning the stock.
Knowledge IS power, only IF you apply that knowledge.
I share, to pay it forward (and for the pat on the back), because many people shared their knowledge with me. That is why I often sign off with...
Knowledge IS power, only IF you apply that knowledge.
WZ
MOST buyers of options make the costly mistake of not choosing a MUCH further out expiration than they think they will need. They run out of time and money, before the underlying stock moves up. Check out a few free videos on YouTube that explain the Poor Man's Covered Call. Basically, you get paid weekly premium, to own a 1 year, deep in the money call option. This weekly premium lowers the cost basis of the LEAPS call that you bought. In the mean time, the LEAPS call rises in value, as the underlying stock rises in value.
You still need to pick a growing stock to be profitable, but how is that different from buying and holding a growing stock.
with such strength and staying power as pfe. In my portfolios I have a half dozen equities with like returns accumulated over many years. I think people are in too much of a rush to accumulate assets and are willing to abandon fine steady growers such as PFE. Buying good quality equities at times when P/Es are toward the low side and paying a decent dividend (relative to the CPI) with healthy cash flows will get you where you want to go. Slow and steady with compounding as an ally ,but most of all PATIENCE.
WZ