Just a few weeks ago, Pfizer Inc. (NYSE:PFE) shares hit a 52-week high of $39.43. But of course, the recent correction in the equities markets has left a mark. During the period, PFE stock has lost about 11%.
OK then, is this an opportunity to buy on the dip? Or, could there be even more problems for PFE stock? Well, it’s true that there are fundamental issues to consider.
Some of the company’s major franchises like Viagra have come under lots of pressure because of competition from generics. There is also uncertainty regarding pricing, as governments across the world look at ways to handle this issue.
So while such concerns are serious, I still think there is a value play with PFE stock. If anything, the recent fall in the shares has discounted a good deal of the problems.
Besides, there are several positive trends that should help. So let’s take a look at three.
PFE Stock Advantage #1 – Focused on Growth
Over the years, growth has been elusive for Pfizer. Yet the company has been making changes to get things back on track. Part of this has been to streamline the operations, such as by looking to unload the consumer product divisions (it has offerings like Centrum, Advil and Chapstick).
Next, PFE still has a comprehensive portfolio of drugs that continue to produce robust growth. Just some include Ibrance (a cancer drug), Prevnar 13 (a vaccine for pneumococcal) and Xeljanz (an immunology drug). These are likely to generate substantial cash flows for many years to come.
But of course, the key to growth is the pipeline. And yes, PFE has been investing aggressively, in terms of internal development, acquisitions and partnerships.
The result is that the company has a multitude of drug candidates that are focused on large market opportunities. More importantly, Pfizer has been gaining traction with its development efforts. Last year, the company got 10 approvals from the FDA, which is the highest level in over 10 years.
PFE Stock Advantage #2 – Tax Reform
The recently passed tax reform legislation will certainly have a positive impact on Pfizer stock, as profits will likely increase, and there will be more resources to invest. In fact, over the next five years, the company plans to spend about $5 billion on capital projects in the U.S.
According to PFE, the effective tax rate is expected to fall from 23% to 17%. What’s more, there will be a nice benefit with the repatriation of overseas cash.
Here’s what CEO Ian Read had to say:
“As you know, Pfizer has been advocating for many years for comprehensive tax reform. That’s because the system that had been in place for U.S. based multinational companies that are competitive disadvantage vis-à-vis foreign competitors with regard to the tax rate and international access to capital. The new tax code addresses these issues and helps level the playing field to make U.S. companies more competitive.”
PFE Stock Advantage #3 – Financials and Dividend
One of the big attractions of Pfizer stock is the dividend. It’s at about 4%.
But PFE is more than just a yield play. Keep in mind that the shares are fairly cheap at current levels. Consider that the forward price-to-earnings multiple is 11X. By comparison, Bristol-Myers Squibb Co (NYSE:BMY) trades at 16X, and Novartis AG (ADR) (NYSE:NVS) sports a multiple of 14X. Also, the Wall Street consensus for PFE stock is $40, which implies 16% upside.
Tom Taulli is the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.