Pfizer Inc (PFE)

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.

Pfizer (PFE-N) or Merck (MRK-N)? Neither. These companies did very, very well back in the last part of the last century. Patent protection laws really haven’t given them enough of a boost to be able to cover the enormous costs of developing and testing the drugs, and there is a high failure rate. The companies have made massive consolidations. They’ve tried to grow by spending less. He would look at the Bio-Pharma area instead, such as Biogen (BIIB-Q) or Celgene (CELG-Q). Financially, these companies are in good shape and are growing.

Pharmaceutical stocks in general have not being great performers because of worries about drug pricing and patent cliffs. This is a company that has faced patent cliffs in the past and currently. The way the industry normally responds to this is by developing new drugs themselves to replace what they are losing, or making acquisitions of companies that have promising drugs. Dividend yield of 3.9%. (Analysts’ price target is $37.)

They have global heft and a number of different proprietary drugs, the size of their R&D program. Has the largest sales force in the world. They have the foreign exposure in emerging markets. PE is very attractive. Dividend yield of 4%. (Analysts’ price target is $37.50.)

Pharma is out of favour. This trades at about 12X earnings with a 4% dividend yield. There could be a catalyst if the company sells its consumer division. (Analysts’ price target is $37.00.)

This is inexpensive trading around 12.5X forward earnings. There are some patents coming off including Viagra and some pain medication. Made a couple of acquisitions. Expect it will be a flat environment for the next year. Decent dividend yield.

It is trading in a fairly well defined trading range. It could go up or down, equally as likely. He would not touch it right now.

She is buying it because you have a high quality company that has done nothing for some time. Development going on is interesting even if not the block buster drugs of the past. It is a nice entry point and there will be attractive upside. You get a nice dividend to wait. 3.8% dividend.

Yield is about 4% and the stock is selling at about $33, so he sees a skinny into the low $40’s. They’ve struggled for the last 2 years because blockbuster drugs have come off patent, but they are using financial engineering to continue to push the company forward. Have made several acquisitions of new and upcoming companies with some very interesting drugs. A very low risk way of playing the healthcare industry. There is more upside than downside.