Pfizer Inc (PFE)

Pulled back because they wanted to do a big acquisition, which was confusing to the market as they seemed willing to pay any price for the company. The market gave a thumbs down to that acquisition. His model price would have been crushed. This pullback is a buying opportunity. Model price is $37, a 22% upside.

A huge company with several drugs in the pipeline, but none of them appear to be blockbusters that are going to make a material difference. Stock valuation is pretty decent, and has a very nice dividend, but he just doesn’t see a whole lot of growth. They are preparing to split the company into 3 separate entities, but that is going to take a couple of years. (See Top Picks.)

Have been in discussions for a takeover of AstraZeneca, and he does not think this deal will go through. For them to buy, they would probably be a laggard for the next 5 years. He sees no upside for them. If this deal dies, he can see the stock ride up to $33.41.

Thinks their acquisition of AstraZeneca will happen and will be good for this company. Came out with some really lousy earnings. Company has not decreased guidance. If you look at this quarter, it is always seasonally weak. This acquisition, for long-term investors, could be a pretty good buy at this time.

The pullback is attractive. This is a Dow component. Pays a good dividend. The whole pharmaceutical space is having a really good run. For a little bit more higher risk and a better longer-term outlook, something like a Gilead Sciences (GILD-Q) (?) or Celgene (CELG-Q) are interesting on a pullback they’ve just gone through. Wouldn’t do this for a while, but would continue to hold this company. This is a little expensive right now because it has done so well and people are running to the safety of these names.

In the ‘80s and ‘90s they came out with so many block buster drugs. Now they don’t have those drugs in their pipelines. The acquisition they are working on now will prevent the valuation increasing much for a while.

There is a shuffling of the deck in pharma right now. We don’t have the health care leverage in Canada right now. This is a good one.

Over the last year or so, it has run up a fair bit and is now trading in the range of 15 or 16 times earnings and dividends have come down. A problem he has with pure pharmaceutical companies is that they are very dependent on their pipelines. Pipelines in this business are still pretty good, but unfortunately they are not big blockbuster drugs any more. He prefers something like Johnson & Johnson (JNJ-N) which has pharmaceuticals, medical devices and consumer products.

Likes to find sectors that have been out of favour for some time. This sector had the patent cliff. A lot of companies restructured and some became distribution businesses. PFE made acquisitions. Little growth now and predictability. Pays out less than 50% of earnings. Health care is the biggest industry in the US as the population ages. He owns MRK. Look at the biotech sector because that is the companies being acquired.

Organic growth in large cap pharmaceutical companies is something like 2%-3% and in order to offset that, they sell non-core assets and put that money back in their pipeline. This company’s pipeline has Prevnar which they are going to use in adults, as well as a breast cancer drug. These 2 drugs combined he feels are somewhere in the $2 billion range over the next couple of years. Feels the stock is worth $35-$36 on an analysis basis. Yield of 3.25%.

Not very expensive at 13X earnings with a 3.5% dividend yield. Great free cash flow yield of around 7%. He prefers Abbott Labs (ABT-N) or Johnson & Johnson (JNJ-N) because they are not pure pharmaceutical companies.

(A Top Pick Dec 4/12. Up 25.77%.) Sold his holdings at around $29. On a good correction, he would go back into this one.

A slow and steady chug along company that doesn’t interest him. It is sort of fighting the inevitability of very expensive capital intensive new breakthrough drugs going off patent. Lipitor is the poster boy of this. It was a multibillion dollar revenue producer and when it went off patent, they have been seeing declining revenues ever since.

Most of the pharmaceutical companies are vastly overvalued. Hard to see earnings growth going forward. For all of these big, pharmas you are paying too big a price for the multiples of earnings. The only one that he finds very cheap in this area is Teva (TEVA-N) which everybody hates.

(A Top Pick Oct 15/12. Up 23.72%.) At the moment, the stock is doing quite well. He is looking at it, but is not unhappy to continue holding it. Good story long-term.