The stock market correction that started in October and has continued in November will encourage investors to buy more conservative stocks. Since the biotechnology index is leading the market’s decline, buying established drug stocks should pay off when the markets eventually rebound. Already, the iShares Nasdaq Biotechnology ETF (NASDAQ: IBB) has dropped 17% from its yearly highs and could be heading for new lows. Conversely, Pfizer Inc. (NYSE: PFE) stock is closer to its 52-week highs. Plus, Pfizer stock has a dividend yield of around 3%.
Pfizer reported third-quarter earnings that came in below analysts’ consensus estimates. Moreover, its 2018 guidance indicates that it expects its annual sales to decline year-over-year.
But Pfizer could counter its near-term headwinds and attempt to boost Pfizer stock in a number of ways. Despite the government’s fury over large increases in drug prices, PFE has room to raise the prices of some of its products. It may justify such a move by citing the need to hire more employees and spend more on R&D.
The sales of Pfizer’s sterile injectable drugs have been weak, so PFE could look to bolster that business by increasing its spending on marketing and product development. With other drug firms moving towards biologics, Pfizer needs to spend more on developing its own biologics business.
Sales of Pfizer’s IBRANCE drug have lagged expectations, but the treatment did generate $1 billion of revenue last quarter.
Buying Back Pfizer Stock
PFE stock trades at just 14 times its expected forward earnings. Given the low valuation of Pfizer stock, PFE could buy back at least $3 billion worth of PFE stock. Merck & Co., Inc. (NYSE: MRK), whose shares are trading near their 52-week highs, is valued at 16 times its forward earnings. Bristol-Myers Squibb Company (NYSE: BMY) may trade at a lower forward multiple of 13 times, but it is currently reducing its costs by laying off employees.
Pfizer’s Advancing Pipeline Will Lift Pfizer Stock
Pfizer’s pipeline continues to advance in multiple areas. Results from a Phase 3 study of its tafamidis drug, which is supposed to treat transthyretin cardiomyopathy, were positive. The company expects to file an application for FDA approval of the drug by the end of the year.
In the inflammation and immunology space, PFE earned a breakthrough designation for two JAK inhibitors for the treatment of atopic dermatitis and alopecia areata.
Atopic dermatitis has a large addressable market. In that market, Pfizer already has EUCRISA, an ointment whose efficacy is only around 50%. It will need to introduce a more effective treatment, in order to compete against the other players in the atopic dermatitis space.
Pfizer’s loss of exclusivity for Lyrica in the U.S. could spook investors, including the current owners of Pfizer stock. If PFE stock falls on this development, PFE would reach a good entry point, given the company’s strong pipeline.
Analysts appear to generally have a neutral view on Pfizer stock. The average price target of the 11 analysts covering Pfizer stock implies that the shares will only rise 1.69% over the next year.
The Bottom Line on Pfizer Stock
If PFE stock falls further, investors who want a stable, mega-cap drug stock should consider buying the shares on weakness.
As of this writing, the author did not own shares of any of the companies mentioned.