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Popping the Pfizer Pill

Posted by: Adrienne Carter on December 14, 2006


I admit it. I like a good bargain, whether it’s a new pair of shoes or a blue chip stock. That’s why I find Pfizer so appealing these days. After Pfizer announced it was pulling a major pipeline drug from trial, the stock started looking a little peeked. Shares of Pfizer fell from around $28 to less than $25. It’s moved up a bit since its low. Certainly, investors’ concerns are understandable. Besides this latest news, Pfizer also faces patent challenges with its blockbuster drug, Lipitor.

With all that bad news, though, it sounds like a good contrarian play to me. Indeed, at its current price, Pfizer is trading for roughly 12 times 2007 earnings. In fact, it’s at the cheapest level since Hillary Clinton decided to push her health care agenda more than a decade ago, an agenda that decimated the stocks of pharmaceuticals like Pfizer.

Value guys like John Buckingham of Al Frank Asset Management figure that Pfizer should have a P/E closer to 17—which would push the price up to as much as $40. Don’t think it could happen? Well, consider Merck, which isn’t exactly a golden boy of Wall Street these days. Right now, Merck has a P/E north of 17. It’s probably only a matter of time before investors come to their senses about Pfizer.

Reader Comments

S. LeHew

December 21, 2006 12:59 PM

Pfizer also appeared to be a good bargain when the following appeared May 4, 2006, on a business week online feature on the S&P's analysis.

Rating: AAA
There are no current concerns regarding the rating or outlook. However, Pfizer (PFE) is growth-challenged for 2006-2007. The company has suffered a number of major drug-patent expirations (Neurontin, Zithromax) and is due to experience more (Zoloft, Norvasc). Still, Pfizer has one of the best near-term product pipelines in the industry in terms of high-sales-potential prospects, has recently received approval on a number of prospects (including Sutent and Exubera), and is sitting on a large pile of U.S.-based cash. Pfizer is in the process of selling its consumer health-care business in a transaction that may further improve the company's cash balance."

Wow, this really makes one cringe doesn't it. Pfizer had all their eggs in one basket with torcetrepid. Now that torcetrepid is dead, and Lipitor, a product that did NOT come from Pfizer's R&D program is losing its market dominance, investors should take note of the true differences between Pfizer and the other Big Pharma companies that remain focused on R&D.

While you say "Merck isn't exactly the golden boy of Wall Street these days", Merck is a company proven to succeed in terms of long term growth. They have a healthy R&D program which should be the #1 factor in evaluating Big Parma companies. This means sticking to the fundamentals. There are no short cuts.

Just ask Pfizer.

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