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Inside Wall Street


Pfizer's Bulging Drug Pipeline

In this dismal economy, it would surprise few people if Pfizer (PFE) were to announce job cuts or scale back its sales forecasts. Even so, some pros believe it's a timely buy because of its long-depressed stock price and rich pipeline of new drugsplus or minus—plus an attractive dividend yield of 7.7%. Pfizer is banking on 25 new products in Phase 3 late-stage trials, notes Wendell Perkins, chief investment officer at Optique Capital Management, which owns shares. Meanwhile, Pfizer's Lyrica, a pain remedy already on the market, is being tested for conditions such as epilepsy and anxiety disorder.

Another boon: the strong cash position of Pfizer, which has $26 billion on the balance sheet. In 2008, the company is expected to generate cash flow of $18 billion, enough to make the yearly dividend payments, fund capital expenditures of $1.9 billion, and still have some left over to buy back shares or another drug company, says Perkins.

Although the patent expirations on Lipitor and Viagra in 2012 and 2013 will probably hurt earnings, analyst Steven Lichtman of Banc of America Securities (BAC) is "focused on Pfizer's solid balance sheet" and its ability to offset the patent problem through acquisitions. He rates Pfizer a buy, with a 12-month target of 20. The stock, down from 24 a year ago, is now at 16.57. It hit 50 back in 2000. Lichtman sees profits of $2.38 a share in 2008, $2.47 in 2009, and $2.59 in 2010.

Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

Navigant Gets More SOS Calls

Crisis manager Navigant Consulting (NCI) works with troubled hedge funds and other companies, helping them deal with restructuring and litigation. In the current downturn, it is receiving plenty of desperate calls, mainly from outfits trying to avert bankruptcy or avoid a legal battle arising from their huge losses. "We try to rebuild the credibility of our hedge-fund clients to assuage investors' fears," says Mitchell Kaye, managing director at Navigant's Capital Advisors unit.

While Navigant's clients are reeling from the subprime mortgage mess and run-ins with regulators, analyst Randy Hugen of Piper Jaffray (PJC) says the company is reaping the rewards from the wreckage. Hugen rates Navigant's Big Board-listed stock, now at 18.59, a buy. He forecasts earnings of 88 cents a share in 2008 on revenues of $816 million and $1.09 in 2009 on sales of $887 million.

Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

Spartan Stores for Thrifty Shoppers

Despite an economic slump in the Midwest region where it operates, Spartan Stores (SPTN) is weathering the storm fairly well. Spartan's 88 supermarkets and 14 deep-discount stores are in hard-hit Indiana, Michigan, and Ohio, but sales have been strong owing to the low prices of its food and drugs. Besides its retail operation, Spartan also distributes more than 40,000 products to 400 grocery stores.

The company "has been up in a down market," says David Sowerby, portfolio manager at investment firm Loomis Sayles (LSBRX), which owns stock. The shares were at 23.18 on Dec. 10 vs. 16 on Jan. 30. Sowerby figures they will hit 31 in 18 to 24 months. The stock is "ranked to outperform the broader market in the coming year," says Bryan Fong of researcher Value Line (VALU), who sees Spartan earning $1.75 a share in 2009 ending on Mar. 31, and $1.85 in 2010.

Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

Marcial writes the Inside Wall Street column for BusinessWeek. In 2008, FT Press published the book Gene Marcial's 7 Commandments of Stock Investing.


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