Pfizer Inc. (NYSE:PFE) has been rather quietly churning higher. Over the last six months, Pfizer stock is up nearly 10% and it hit new highs in December.
With a dividend yield of 3.75% and a low valuation, many investors are content holding shares of PFE. The question is, should investors buy in now?
Let’s examine some of the positives.
Pfizer Stock Valuation
Many investors are drawn to flashier names like Celgene Corporation (NASDAQ:CELG) or Gilead Sciences, Inc. (NASDAQ:GILD) but ignore large-cap stocks like Pfizer. Some say it’s too boring, but good business has never been boring to me.
There’s a reason we liked Pfizer back in July when it was $33. Trading at 22 times earnings wasn’t why, but trading at just 13 times forward earnings estimates was. That’s a shockingly low valuation for a company with a strong brand name like Pfizer and big dividend yield.
Although far from robust, analysts are calling for almost 8% earnings growth on essentially flat revenue growth. That means the company is becoming more profitable and boosting margins.
While it would be more enticing to see a sales gain, remember we are only paying 13 times its next 12 months of earnings. That’s pretty darn cheap.
While analysts expect Pfizer’s earnings growth to slip to just 6.6% next year, they are looking for sales growth of 2.5%. Although these aren’t great growth numbers, they’re still very solid in my opinion.
For investors who want stronger growth and a low valuation, perhaps they should consider CELG stock.
Pfizer’s Dividend
For some, a low valuation and reasonable growth isn’t enough of a reason to own the stock. In fact, I’d personally take CELG over Pfizer stock — if we’re only talking about growth and valuation.
It would, however, be foolish not to consider the dividend yield of Pfizer.
Paying out 3.75% is a pretty stout piece of income. While many growth investors may shrug off the attractiveness of a dividend, income investors chomp at the bit for a payout like this.
Keep in mind, automakers like General Motors Company (NYSE:GM) and Ford Motor Company (NYSE:F) are considered high yielders and barely pay out this much. Some high yielders, GM included, actually have a lower dividend yield than Pfizer.
This is just one reason why PFE stock made our list containing some of the best dividend stocks to buy.
Consider U.S. Treasury notes and bonds. The AAA-rated paper pays out a low yield in exchange for investor capital. We can debate the merits of risk-free returns until we’re blue in the face. (So we won’t!) But instead, let’s look at the payouts.
The 10-year Treasury yields about 2.45%, while the 30-year yield is roughly 2.9%. While there are times to buy fixed income and avoid stocks, I don’t think this is one of them. Why buy a 10- or 30-year Treasury paying out between 2.4% and 2.9% when we can buy Pfizer stock?
It pays 3.75%, smashing the yield form Treasuries, while posting decent growth in its business.
Trading Pfizer Stock
The last reason to consider a long position in Pfizer stock?
Simple, its stock chart.
Click to Enlarge
PFE stock has a pretty attractive setup for both short- and long-term traders and the chart is fairly simple to read. Momentum is neither robust nor dreadful. Shares are not overbought or oversold. Pfizer stock, for the most part is a shoulder shrug.
Short-term traders can consider buying PFE north of $36. This level of resistance gave way in December and has now been acting as support. Should it continue to do so, new highs near $37.50 and above are in target.
Investors can buy now and take on Pfizer stock as a low-risk, low-reward trade. However, longer term investors can use today’s prices as their first entry and look to add on a decline. Specifically, a fall to the long-term trend line (black) would be a great spot to buy at. It will also be near the 200-day moving average, another likely level of support.
This trend-line has been in place since November 2016. I would have plenty of confidence adding to a long position in Pfizer stock should it eventually correct to this level. On the plus side, it will have an even higher yield too.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell did not hold a position in any of the aforementioned securities.
