Marcial: Drugmaker Pfizer, a 'Fallen Angel?'

If the market is bottoming out, the huge drugmaker could be among the blue chips leading the charge upward, says investor Carl Birkelbach

Pfizer—52-week stock price

by Gene Marcial

If you are one of the bulls who believe the stock market may be bottoming out, you might be buying into some of Wall Street's A-list, blue-chip names that have been smacked down along with the rest of the crowd. Is the market, indeed, close to hitting a floor?

Not many think so, but some brave souls believe it is. One of them is investor Carl Birkelbach, president of Birkelbach Investment Securities, who had been negative on equities for months but is now snapping up several "fallen angels," led by Pfizer (PFE). Shares of the world's largest pharmaceutical company had sunk from a high of 39 in January 2004 to a low of 17 on June 6, 2008, but have since been creeping up, to 18 on July 29. (The stock is near where it was trading when Pfizer was last featured in this column (BusinessWeek.com, 6/6/08), in early June.

Birkelbach argues that with the market in the process of stabilizing—and poised to turn around—Pfizer will be among the names that will lead the march upward. He sees the shares hitting 25—their 52-week high reached on Oct. 10, 2007—by yearend. "The stock has already discounted all the negative stuff and bad news thrown at it," says Birkelbach. who says Pfizer exemplifies equities that have already seen the worst of the bear's rampage.

Lighting a Fire

Catalysts that could move Pfizer's stock higher include strategic acquisitions, according to Birkelback. Such deals could widen the company's portfolio of drugs and lessen the impact on earnings of the patent expiration of marquee cholesterol drug Lipitor in 2011. Should Pfizer release good news sometime soon about any of the drugs in its pipeline, greater focus by analysts and investors would certainly stoke the shares. And with its huge cash stash, estimated at $28 billion, the drugmaker could repurchase more shares, in addition to the $10 billion worth of stock it bought in 2007.

Part of the reason Birkelbach is convinced the market is near its bottom is straight out of the technician's handbook: The Dow Jones industrial average dropped to 10,962.54 on July 15, which he notes is nearly midway between the index's all-time high of 14,164.54 on Oct. 9, 2007, and its low of 7,524.06 on Mar. 11, 2006&or, in technicians' parlance, a "50% retracement." (After the Dow's 266-point gain on July 29, the market benchmark is still down 14.08% for the year, but is 0.42% higher to date in July, vs. June's decline of 10.19%.) He figures the Dow's decline from its peak is a large enough correction that it should turn toward higher ground, possibly reaching its record high—or beyond.

Birkelbach acknowledges that the housing meltdown and credit crisis are not over yet. But he asserts that government mechanisms and private-sector initiatives are in full swing to resolve those major problems. "We are at a stage where solutions are being provided," he says. Merrill Lynch's (MER) recent move to raise more than $30 billion by selling troubled mortgage-related assets is an example of efforts to help solve part of its credit problems, he adds. The investor figures that as more shareholders come to realize the market is on a comeback trail, they will bail out of energy and commodity stocks and switch into financials, technology, and health care, including biotechs.