Healthcare stocks have been a focus in 2020 for a bevy of reasons. The novel coronavirus has strained hospitals and put biotech stocks to the test. It’s also got drugmakers like Pfizer (NYSE:PFE) in focus. Unfortunately, Pfizer stock has been more volatile than investors have been used to in the past.
Or is that unfortunate?
On the one hand, volatility is a risk. On the other hand, it’s also an opportunity. If investors are able to exercise any shred of accuracy on the timing of their purchases, it can lead to outperformance down the road.
I get it, though. The old mantra of “time in the market is more important than timing the market” rings true.
But as with virtually any other asset class, investors want a good deal relative to what the expected future price will be. No one wants to buy a home for $231,000 — the median U.S. home value in 2019 — if they can buy it for $200,000 or less six months from now.
Is Pfizer giving investors the opportunity to buy at a discount now?
Trading Pfizer Stock
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The risk of buying Pfizer stock right now is that it goes down. The risk to wanting to buy Pfizer and not is that it goes up and an investor has no stake. That risk isn’t unique to Pfizer, either. That’s the risk we always take in the stock market.
Those who feel comfortable with their technical analysis can lean heavily on timing the stock. Those who do not may consider buying some now and leaning less on the technicals in regards to timing Pfizer.
As for the stock, above is a five-year weekly chart. A few things immediately stand out to me when looking at this chart.
- The stock has been making higher lows since 2018 (blue line)
- $39 has been stiff resistance in 2020
- The 200-week moving average has been solid support through the years
- Shares are leaning on the 50-week moving average, 200-day moving average (not shown), and uptrend support (green line) as support
That last point is what I’m focused on. With Pfizer stock clinging to a number of key support levels, we should see a solid bounce if the stock is healthy.
Currently the 10-week moving average is acting as resistance. But if Pfizer has strength, it will not allow this short-term moving average to break it below a longer-term moving average, that being the 50-week.
Further, a break of uptrend support would also be another negative, as the chips quickly stack up in the bears’ column versus the bulls’ column.
If support holds — making the case for bulls to buy a starter position if they like Pfizer stock — then I ultimately want to see shares test up into $39 resistance. To do it, Pfizer will need to clear the 10-week moving average. Above $39 puts $42 in play, the high from 2019.
On a break of support, look for a daily close below the 50-week moving average and/or 200-day moving average. Below puts the 200-week moving average in play (currently near $34.50). Below that and PFE stock could be heading for the low-$30s.
Valuing PFE
At the end of the day, it comes down to a simple question: How well can Pfizer execute?
Consensus expectations for the year aren’t great. Analysts expect revenue to contract 4.5% and for earnings to slip slightly, down less than 1%. However, the opportunity really lies in 2021, which is less than two fiscal quarters away.
Estimates call for 10.2% revenue growth alongside earnings growth of 14.3% to $3.35 a share. Now that’s where Pfizer gets interesting, as it leaves shares trading at less than 10.5 times earnings. Combine that with a hearty dividend yield of 4.2% and this name is looking more attractive.
The caveat is a low valuation tends to be low for a reason. How many years did we see Celgene and Gilead Sciences (NASDAQ:GILD) trend lower and lower all the while sporting single-digit price-earnings ratios?
Pfizer seems a little different, though. While it won’t deliver the same growth as Amazon (NASDAQ:AMZN), double-digit revenue and earnings growth is quite respectable. Particularly when it’s paired with a dividend yield that is more than six-fold the 10-year Treasury yield of 0.66%.
Last quarter, Pfizer beat on top- and bottom-line estimates and raised its full-year estimates for both metrics. While the outlook was just a slight boost to management’s prior guidance, the midpoint of the new outlook was notably ahead of expectations.
For all the reasons above, Pfizer seems like a worthwhile name to buy on the dip, particularly if it continues to deliver. For some though, they should consider following the technicals laid out above.
On the date of publication, Bret Kenwell did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell.
