For the past five years or so, shares of Pfizer have done nothing but disappoint, more recently than in any of the earlier years. That brings me to the question whether shares of the world’s largest pharmaceutical company are a steal. The answer to that question better be yes because in the past quarter and a half I’ve been buying shares likes its going out of style.
Currently, Pfizer is my largest holding in my portfolio (PennWest Energy Trust is a close second). For me, I’m holding PFE for the long-term as I believe its one of the best long-term holdings I’ve seen in years. With a current yield of over 6%, it pays me nearly double a US Treasury bond.
At about $20 a share, PFE represents a company that has seen its fortunes evaporate over the past two years or so. Management had to stop late trials for a plethora of drugs, all the while gearing up for Liptor to go off patent by 2010. Lipitor is by far the companies biggest and most profitable drug, the cholesterol lowering drug translates into roughly 40% of Pfizer’s net profit in a given year. Many experts on the street believe its pipeline is not that strong. However in my view, I believe that in the next 3-5 years the company will announce some really large drugs from its pipeline that will more than offset the loss in exclusivity from Lipitor. What is really ailing Pfizer right now is mostly a crisis of confidence with management. Analysts have been negative on the company for most of 2007 and so far the same is true in 2008. Institutions have sold off the name to levels not seen in over 6 years. Here is where I see potential investment value. Its long been my view that whenever Wall Street spits out a great American company, that is usually when its the best time to invest in it (granted you have a long-term time horizon).
Lets face it, Pfizer is not going anywhere, it is by far one of the most profitable pharmaceutical companies in the world. It conducts business in many foreign countries and has extensive collaboration with dozens upon dozens of biotech companies and universities. Not to mention having a slate of PhD scientists who will eventually come out with new blockbuster drugs. Less we forget that Pfizer has well over $20 billion in cash sitting in its corporate coffers. With that said it is also my view that the company will soon announce a big acquisition that will better help the company innovate new drugs for a plethora of concerns.
For me, longer-term is the key. I fully see Pfizer’s stock price in the next 5 years to be substantially higher than current levels. Once the street feels more favorable I think you see the stock return to its former glory.
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