I owned shares in Pfizer (NYSE:PFE) when the COVID-19 pandemic began. It’s been fun watching the stock rise over 60% in about two years. Seeing Pfizer’s stock price fall nearly 60% from its peak wasn’t all that fun.
Was I tempted to sell during this sharp decline? No. Instead, I’m buying this beaten-up, high-yield dividend stock with a full fist.
Through the dark clouds
It’s understandable why Pfizer stock has fallen so sharply. The drugmaker has faced some major challenges and has more ahead.
Pfizer’s sales fell 42% in 2023 compared to the previous year. Sales of the company’s top-selling product, the COVID-19 vaccine Comirnaty, fell 70% year-on-year. Sales of Pfizer’s COVID-19 pill Paxlovid plunged 93%. Ouch.
These COVID issues weren’t Pfizer’s only areas of concern. Sales of the company’s six cancer drugs, which generate $180 million or more annually, fell by double-digit percentages. Sales of Pfizer’s best-selling cancer therapy, Ibrance, fell 7% year-over-year in 2023.
To make matters worse, key U.S. patents on seven Pfizer products expire by 2027. All were blockbusters last year.
So why do I buy Pfizer shares? I can see the sun peeking through the dark clouds. I’ve watched the tremendous productivity of the company’s pipeline over the past few years, with a record number of Federal Drug Administration (FDA) approvals in 2023. I’ve also watched Pfizer leverage the huge cache of cash it accumulated during the COVID peak used to gobble up several smaller drug manufacturers. These deals have significantly strengthened the company’s pipeline.
The numbers look good
From my perspective, Pfizer’s numbers look very good. Let’s start with the review. The stock trades at a price-to-earnings ratio of less than 11.5. Compared to the S&P 500With a forward earnings multiple of 20.5, Pfizer is dirt cheap.
Admittedly, this valuation metric is useless if Pfizer’s sales and earnings continue to decline. However, I don’t think that will happen. This year is likely to be the low point for the company’s COVID-19 product sales. Pfizer expects new products and indications to generate enough additional revenue to offset the impact of upcoming patent expirations and more. Analysts are a little less optimistic, but still expect much of the lost sales caused by the patent cliff to be offset by new products.
Another number I like is Pfizer’s dividend yield of over 6.5%. The big pharmaceutical company’s stock price doesn’t have to rise sharply for the stock to deliver a double-digit total return.
That leads me to the third number that looks good for Pfizer: the roughly $25 billion in new annual revenue the company expects to generate through 2030 from business development deals. In my opinion, this estimate seems achievable given Pfizer’s new products and pipeline candidates through its acquisitions of Seagen, Arena, Biohaven, and Global Blood Therapeutics. I assume that business development will allow the company to grow its sales and profits by at least the 3.5% per year required for an average annual total return of 10%.
I’m preparing for later
I plan to reinvest any dividends from Pfizer over the next few years. However, buying more stocks should prepare me for retirement later.
Pfizer’s dividend generates solid returns at current levels. I expect the company to increase its dividend over time. This seems like a good choice as Pfizer’s management sees dividend growth as a top priority.
What to do with a stock that could deliver double-digit total returns and be a great part of a long-term retirement strategy? My answer is to buy it immediately.
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Keith Speights holds positions at Pfizer. The Motley Fool has positions in Pfizer and recommends it. The Motley Fool has a disclosure policy.
Why I’m Buying This Beaten-Down High-Yield Dividend Stock ‘Hand Over Fist’ was originally published by The Motley Fool