The world has been paralyzed by fear of Covid-19 since March, as case numbers continue to climb. The decimation on Wall Street once the quarantine started was also extremely harsh, but by contrast, brief; the pain in equities lasted but for a blink. Pfizer (NYSE:PFE) stock fell 30% before bottoming out in March. And then, just as quickly as it fell, it recovered almost all of its losses. The bounce was V-shaped and the indices have been setting records ever since.
The latest bump to stock prices came earlier this month when Pfizer shared excellent vacceine efficacy results against the virus. The stock markets spiked violently. In an instant, small caps rallied 10% on the headline. People are ready for a solution.
Pfizer Stock Showed Brilliance this Month
Investors also rewarded Pfizer stock that day, as it jumped 15% on its own headline. Unfortunately it quickly gave all of those gains up. The only consolation for bulls was that the company found its way back into a solid support zone in contention since 1998.
Clearly both bulls and bears love to trade around $35 per share. Too bad that it has a magnetic effect, so it provides support but it also holds PFE stock back. Consequently, the stock is now trading sideways to consolidate.
Except in this case, they’re stuck, so it’s not a clear entry point into Pfizer stock. That being said, I have no qualms with the underlying company. Pfizer has been in business for 170 years and continues to serve mankind very well. Coming first to market with a Covid-19 vaccine this effective is proof of that this company is a winner.
Investors with Realistic Expectations Will Be Happy
Investors need to be realistic with their expectations of PFE stock. Having the vaccine doesn’t mean a flood of incremental profits. Luckily this company has a other products and services to offer, so they don’t need it to survive. So from an investment perspective, there’s no need to rush into Pfizer stock.
Those who bought it on the 15% headline spike are going to be stuck there for a while. The natural price progression from here should be somewhat boring. Long-term investors can wait it out because they collect a 4% dividend. In the absence of fixed income from bonds, this is a viable alternative and a sound standalone thesis. It is smart to own solid companies for the reward of the dividends they pay.
How to Trade Around the Short Term
From a trading perspective, the better entry point is at $35 per share. There’s no specific reason why this stock should fall much farther on its own. The overall markets are somewhat extended and if they correct they will drag down Pfizer with it.
Even in such a scenario, PFE should hold above $32 per share. The shorter momentum trade is to buy it on the breakout above $37.50. Above that, buyers will come in to try for $40. Typically, it is best to wait for confirmation.
Buying in anticipation of short term profits carries a lot of hope. Luckily in this case, “hopium” doesn’t translate into undue risk. The chart doesn’t look like that of, say, Nio (NYSE:NIO). Those stocks that have sharp rising wedges are more susceptible to correction. Pfizer stock has more meat on the bone, meaning less excitement and tamer downside risk.
To Make a Long Story Short
My overall opinion of Pfizer stock isn’t negative. This is a proven company, successful for decades and beyond reproach. Their accomplishments with the Covid-19 crisis alone are testament to the quality of the people behind the scenes. I condone owning the shares for the long term but fail to see the emergency to jump into them today.
Rather, the dilemma is between trading and investing. And in this case, neither is wrong; it’s simply a matter of styles. Active investors will probably look elsewhere unless they wait to buy-the-dip or chase-the-rip. Longer term, those who own PFE stock will collect a strong dividend reward.
Valuation is very reasonable but not a bargain. It has a price-to-earnings ratio slightly below mega-cap tech stocks, which grow a lot faster. If we judge an investment on risk versus reward, Pfizer stock is a draw.
On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Nicolas Chahine is the managing director of SellSpreads.com.