Pfizer Inc (PFE)

In the 90s, drug companies traded at 30X earnings with 10% earnings growth. All the drug companies are suffering badly because they are not getting a good return on R&D. Every country is putting pressure on pharmaceutical prices. This is trading at 20X earnings and has lots of free cash flow, but the drug sector is simply a very difficult place to be.

Has owned this for a long time. Rates of return over the last 5 or 6 years have been mediocre. Trading at $36, and his model price is $45.72, a 27% upside. Pays a 3.56% dividend. They have been totally incompetent. If rates of return ever kept up with the rest of the drug space, he would buy it here and hold it, but it is a frustrating stock.

The trouble with these kind of drug companies is that they made lots of acquisitions, which is how they have grown. Many were considered growth companies because they came out with social drugs, and ended up with huge multiples. There are lots of good things in their pipeline, but there are not going to be these massive, massive blockbuster drugs they used to have.

(Market Call Minute.) This has run up a little bit lately. He likes to buy this at $31 and sell it at $38.

They have a ability to be a global commercialization machine. They have 125 drugs that generate in excess of $100 million in revenue. It is on the uptick after passing the patent cliff. It does have a whole lot of pipeline excitement over the next couple of quarters, but it has a 12.9 times forward earnings with a 3.9% dividend yield.

All the Pharma companies are in a really tough space. Every government globally is squeezing them on prices. They have less and less money to spend on R&D, which means they are having trouble coming up with new blockbuster drugs. The FDA and everyone else are pushing generics as fast as possible. These companies really haven’t had huge blockbusters. He is not a big fan in general of the Pharma sector.

(A Top Pick June 9/17. Up 4.29%.) Arguably your best pharmaceutical company in the world, with the largest research and development pipeline and the largest salesforce. It is not just domestically focused, but has tremendous operations overseas internationally, including emerging markets. Has a nice, juicy 4% dividend yield.

The 5^th largest dividend payer in the Dow at about 3.9%. It is world-class because it is the largest in what they do, international operations with less risk. A conservative way to be a contrarian in the health care space, despite all the wrangling in Washington. Dividend yield of 3.7%. (Analysts’ price target is $37.)

This is a company where earnings forecasts have basically flat lined for about 10 years. Therefore, his FMV calculation has also flatlined and hasn’t really gone anywhere. When those things happen to stocks, the market says “forget about it”, and tend to sell off, which could give you some good opportunities to buy. They will then take a little run and fluctuate up and down around the FMV calculation. This stock is about there now, kind of at the midpoint of its valuation. The highs and lows are $27 and $38, and the stock is threading the needle. If it fell back to $27-$28, he would love to buy some for a trade. If it went to $38, he would sell it Short. This is not a “Buy and Hold” strategy, because earnings haven’t gone anywhere for 10 years, which also means the BV hasn’t gone anywhere. You want to start where the balance sheet is rising steadily, so that if you are standing still, the values are rising underneath you. However, if the values are not rising, and the balance sheet is flat lining, you are not getting richer just by standing still.

Big pharmas have struggled with their drug pipeline coming off patents, and how to replace them. This one has struggled with their organic growth rate, and has been relying a lot on acquisitions. Investors don’t like that as a sustainable approach. However, now they have some things in the development pipeline that look pretty promising, with some thought that they can generate 2%-3% top line growth from those. This is positive and can maybe re-rate the shares higher. It seems like a pretty attractive valuation at this point. She has played the drug theme through Quintiles IMS Holdings (Q-N).

Not a high-risk story. They are one of the largest drug companies with a lot of drugs, and are able to cut costs and move things around. Dividend yield of around 3.9%. Thinks it goes back into the low $40s. You are buying a company that has all of the assets, and they just need the assets to start working, which at some point in time they will.

It is one of the two drug stocks he owns. It has not done a lot in the last couple of years. It made acquisitions in order to get over its patent cliff. He thinks sooner than later it will break out of its sideways trading.

(A Top Pick May 26/16. Up 1.19%.) This is going to have a bit more of a headwind because Viagra is coming off patent next week. This is a really good space, and it has a seasonality that kicks in, in June. There are probably stronger names than Pfizer.

Healthcare has been strong over the last 6 months. The 1^st group within healthcare that really got going and didn’t give it up last year, was the device companies. The 2^nd group were the service and healthcare providers. The 3^rd were the Biotechs. The group that has been “hit and miss” has been big Pharma. He would prefer to focus on strength. You can get a lot of the benefit you are getting from Pharma in some of the big biotechs. You are not going to get hurt by this one, but we are in a good market, and this is one of the more underperformers. He prefers something like Amgen (AMGN-Q), which gives you a basket of great products. You could also look at Celgene (CELG-Q), or even biotech ETFs such as IBB-Q or XBI-Q.

He prefers something like Johnson & Johnson (JNJ-N) because it protects you. It has a consumer products division, a devices division and a pharmaceutical division, and has done much better than this company over the last little while. This company is more of a pure pharma company. The risk is that they are really counting on their drugs, and if some of them don’t work out, it is much more difficult for them.