Why I'm Buying More Pfizer at New Lows

Pfizer’s slow-motion stock crash is quite a sight to see.

Below, the stock in purple versus the Health Care Sector SPDR (XLV) since the Great Financial Crisis. You can see that the aftermath of the pandemic basically destroyed this thing:

Total Return Price, also a disgusting chart. It’s making a new 52-week low right now:

On December 17th I wrote about Pfizer and why I felt the stock was in the process of bottoming. In early January I bought some stock for myself. This morning I upped my position by 50%. I now think this is one of the best opportunities in the entire US stock market in terms of risk vs reward. The stock has fallen slightly from where it was in December when I first began to think about it. I will be buying more if it continues to slide.

I want to preface everything I am about to say with the reminder that I do not give financial advice on the internet (full disclaimer here). Nothing I say here is intended to serve as personalized advice for you or a solicitation to buy or sell any securities. If you want actual financial advice, I have two dozen Certified Financial Planners standing by to take your calls and emails. We serve thousands of households across the country. Go here to learn more.

Okay, with that out of the way, here’s what I’m thinking.

The problem here is fading away. The Covid era basically wrecked this company’s stock. They had the first vaccine on the market and may have been the main contributor of Americans getting their lives back in 2021. Unfortunately, this came at a cost - as I have written about. The success of selling vaccines and Paxlovid treatments during that two-year stretch was never going to be replicated as the virus became endemic. The comps were impossible and the share price was hammered as a result.

This also happened to Moderna’s stock, but Pfizer is no Moderna. This is not a one-hit wonder. It’s a company whose various blockbuster drugs in dozens of other categories are actually contributing to rising revenue ex-Covid products. Pfizer will be fine as the comps of ‘21 and ‘22 disappear in the rearview and new medications take their place.

The acquisition of Seagen (we used to call it Seattle Genetics), with its massive oncology portfolio, is going to be one of the biggest catalysts on the horizon as the integration progresses. According to Pfizer, 1 in 3 people will be diagnosed with some form of cancer in their lifetime. Seagen’s portfolio doubles the size of Pfizer’s oncology business and should lead to no fewer than eight “blockbuster” drugs ($1 billion or more in annual sales) by 2030. In addition, completing and integrating this deal will allow for deleveraging, after which you will probably see a continued return of capital to shareholders. Last year Pfizer paid out over $9 trillion billion in dividends but it bought back zero stock. Bringing back the share repurchases will be a whole new lever to pull.

Pfizer has struggled with the hangover of great success before. There was a time in 2011 when Wall Street was worried they wouldn’t have a replacement for Lipitor. They were also concerned when Viagra came off patent in 2017 as Teva began making a competing formulation. These big, bad concerns didn’t end up mattering much. Pfizer has been around for 175 years. In the pharmaceutical business, ups and downs are the rule, not the exception.

Wall Street has very little hope for Pfizer’s near-term outlook based on how the stock has been acting of late. It trades at a multiple of 10x forward earnings projections in a stock market that trades for double that. It’s also paying a 6.5% dividend yield with plenty of coverage. Pfizer has raised their dividend for fifteen consecutive years and could certainly do so again.

This stock is now in a 60% drawdown, one of the few times in modern history you’ve been able to buy it this far from its highs. It’s one of the cheapest stocks in the S&P 500 based on expected earnings and The Street’s expectations are very low. I think my risk here is another 20% decline, which I will buy, versus a double or more once this company gets a new narrative amongst investors about future growth rather than past heartaches from the post-pandemic. I am willing to bide my time and wait for that new narrative. Many investors aren’t, which is why I see an opportunity. It might take awhile, but I’m stubborn like that.

We’ll revisit this story after its next earnings report.