Pfizer (NYSE:PFE) is a hero for being the first to market with a Covid-19 vaccine. In spite of PFE stock being the star on Main Street, it’s not even being close to being one on Wall Street. It has been lagging flat for the year while the cohort companies are up 400% to 4,000%. PFE stock has showed brilliance, but the rallies faded. Moreover, it came close but failed to make a new all-time high. That mark still dates back to 1999.
The Nov. 9 headline that its vaccine was over 90% effective sparked an incredible rally. I expected that the peak would stand as a top for a while. Luckily who chased it late in November got the opportunity to get out a month later and with 8% profits.
They say that they don’t ring bells at tops or bottoms. The way PFE stock fell off a cliff someone did ring one on Dec. 9. Now it sits 15% lower, but this is not all bad news because this is another opportunity to get long the stock.
The vaccine headlines are out of the way so now it can trade on its merit. There still are a few other vaccine companies on its heels, mainly Moderna (NASDAQ:MRNA). Headlines from Moderna could also move PFE in sympathy. The race to kill Covid-19 is still at full speed and vaccine distribution is only just starting.
A vaccine will also cure many ails of mom-and-pop businesses that are dying by the thousands. The large companies, including the so-called ‘small cap’ stocks, have blossomed at the expense of main street businesses all over the world. A vaccine is the first dose of recovery for them.
There Is Support Below
It has fallen into a solid support zone. The area around $36 per share has been in contest all year. The battle really extends back to 1998, so it should mean something now. Pivots this old are strong, so they will provide support on the way down.
This year’s price action in PFE is atypical. This should be a boring stock and that’s not an insult. It has traded in 2020 like it is a momentum stock, but its metrics suggest it should not have. It has a 25x price-to-earnings ratio and a price-to-sale of 4x. This means that investors don’t expect much in the future and rightfully so. Its sales growth is almost non-existent but that is OK for today’s purpose.
Owning PFE stock I don’t expect awe-inspiring capital appreciation. I would have it for its fixed income and capital preservation. Those looking for “wow” price action should look elsewhere. With this one I should expect the 2.8% yield and not much more in the long run. There is hardly any fixed income available from bonds anywhere in the world.
The good news about it is that the company is reliable, unlike most others in the sector making news this year. The Novavax (NASDAQ:NVAX) stock price, for example, is entirely made up of future hope. Pfizer, on the other hand, has a long line of drugs already on the market and a long pipeline. Management has earned the benefit of the doubt after 170 years of business.
PFE Stock Delivered the Profits as Advertised
In November I suggested chasing the breakout from $37.50 per share. Those who did that enjoyed a 15% rally before the Dec. 9 fade. If I am long the stock now I’d wait out the verdict over the support through $35 per share. New investors can own it starting here and the biggest risk to that is extrinsic.
The indices in general are near all-time highs, which leaves the whole market vulnerable to dips. If that happens, Pfizer stock isn’t going to hold up alone. The downside risk in that case could extend to $34 per share. At that level I bet it will find buyers in droves.
The fast trades like the two it did recently are rare, but I can’t discount another from happening. This is 2020 after all, at least for another few days. If the bulls can get above $38.20 it is conceivable that they rekindle the rally to $40. I would rate this a low odd scenario and one I would not buy in anticipation.
I’d wait for confirmation and chase the rip. My strategy with PFE stock remains the same. Buy the rip (from prior fails) or buy the dip (into strong support). The first scenario is lurking but we are pretty close to the support so I can’t blame those who are in already.
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.
