There could be a light at the end of the tunnel for this beaten-down stock.
Two adages illustrate the dilemma investors face when considering buying a stock in bad shape:
- “Don’t try to catch a falling knife.”
- “Buy the dip.”
These well-known sayings seem contradictory. However, they are not when taken in the right context. Some declining stocks have poor underlying businesses and should be avoided – just like a falling knife. Others have strong underlying businesses and are likely to rebound over time.
I think Pfizer (PFE 0.04%) falls into the latter category. This S&P500 Dividend stocks might be the best bad news buy on the market.
Bad news and more bad news
Certainly, a quick glance at Pfizer’s stock chart screams far more of a “falling knife” than a “dive.” Shares of the big pharmaceutical maker have plunged 35% over the past 12 months, while the S&P 500 has surged nearly 25%.
Pfizer’s bad news started with COVID-19-related revenue declines. Sales of its COVID-19 vaccine Comirnaty fell 70% last year, while sales of its oral COVID-19 treatment Paxlovid fell 92%. The company expects combined sales of the two products to decline by another 36% in 2024.
There’s other bad news going on that isn’t COVID-19 related: Pfizer faces a patent cliff. Eight of its products will lose U.S. patent exclusivity by 2030. They include some of the company’s best-selling drugs, such as Eliquis, Ibrance, Xtandi and Vyndaqel.
How will these losses of exclusivity affect Pfizer? The major pharmaceutical manufacturer projects an impact on its annual revenue of approximately $17 billion per year by 2030. To put that number in perspective, the company’s total revenue last year was approximately $55.5 billion.
Rays of sunlight piercing the dark clouds
Now for some good news: several rays of sunshine are peeking through the dark clouds for Pfizer.
First, the company has had great success obtaining approvals for new products and new indications for existing products. In 2023, Pfizer received a record nine approvals from the U.S. Food and Drug Administration (FDA) for new drugs and vaccines.
The company projects that new product and indication launches made in the first half of this year will add approximately $20 billion in annual revenue by 2030. It should be noted that this is a projection risk-adjusted that is far greater than the expected negative impact on sales due to the looming patent cliff. .
Second, big pharmaceutical companies have been busy gobbling up small drugmakers. One deal wasn’t that small, with a price tag of $43 billion for Pfizer’s acquisition of Seagen. The company estimates its business development deals will generate $25 billion in new annual revenue by 2030.
Third, Pfizer is expected to come up with other new drugs that were not included in either of the previous two projections. For example, disitamab vedotin, a promising cancer treatment, and influenza vaccine PF-07252220 are being evaluated in late-stage clinical studies.
The best bad news buy on the market?
I can’t leave out the exceptional Pfizer dividend yield by 6.3%. The dividend is likely to increase, based on comments from Pfizer CFO Dave Denton during the company’s fourth-quarter earnings conference call. With such a high yield, Pfizer doesn’t need to generate strong share price growth to provide investors with attractive overall returns.
Unsurprisingly, Pfizer’s valuation also looks attractive. Shares currently trade at 12.7 times forward earnings. By comparison, the multiple of forecast profits of the S&P 500 healthcare sector is 18.5.
Is Pfizer really the best bad news buy on the market? I think it might be.