Billionaire_Bunny: Why Pfizer Stock is a Great Buy Now

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Thursday, October 22, 2020

Why Pfizer Stock is a Great Buy Now

As an investor, I have been looking around the stock market for stocks that pays out dividends and great value. I came across this company called Pfizer Inc. (Ticker: PFE) when I found out about a close friend of mine who is a 
value investor mentor, Chris Lee Susanto, who has invested in Pfizer Inc. as one of his stock position in his portfolio. I was attracted to this company because it was a stock that pays out dividends, but its price was trading at an attractive valuation.

Anyways, if you readers haven't heard of Pfizer Inc. (Ticker: PFE), let me introduce you to this company profile. Pfizer Inc. is an American multinational pharmaceutical corporation headquartered in New York City. In 2012, it was one of the world's largest pharmaceutical companies and ranked 57 on the 2018 Fortune 500 list of the largest United States corporations by total revenue.
 
Seeing my friend invested in this company had made me curious about the company. I decided to research my own on Pfizer Inc. and became interested in investing in it for my dividend growth portfolio. Pfizer Inc. stock has dropped 15% and climbed back to the price it was a quarter ago. It's currently trading at $37.20 (as of October 22, 2020) and yields 4.02%. 
 
After researching on my own on Pfizer Inc., I believe that this company has a potential upside. It was, of course, trading at a valuation that is attractive for many value investors. In this article, I would explain why Pfizer Inc. is an outstanding dividend growth stock currently trading at an excellent price for investors to buy. Moreover, Pfizer Inc. is a great company to invest in with or without a Covid-19 vaccine. This reason had led me to place Pfizer Inc. as my second-largest position in my stock portfolio. 


The Covid-19 Vaccine Race
The Covid Pandemic has been a turmoil experience for many people living on this earth. As I'm writing this article, I am hoping that a vaccine for this illness is found. It's been a long time since I could go around freely, without being required to wear a mask. However, when there is a problem, it comes with a new opportunity. This crisis had become an opportunity for companies that are in the pharmaceutical industry.  
 
I'm going to be honest with you readers. I have no experience or knowledge in the medical niche. However, I learned some understanding regarding the procedure that pharmaceutical companies have to go through before releasing a new drug. In releasing a new drug, a company has to go through Phase 1, Phase 2, and Phase 3 trial. The question now is to know when everything will go back to normal. 
 
As a dividend growth investor, I believe that this can be an opportunity for me to invest in companies that have the potential of coming out with the drug to cure the Corona Virus. I'm going to explain the different phases that come from the New York Times webpage.
 
Phase 1: "Scientists give the vaccine to a small number of people to test safety and dosage as well as to confirm that it stimulates the immune system."
 
 - Inovio (INO). It doesn't pay a dividend.
 Merck (MRK). It yields 3% and has been growing the dividend consistently for nearly a decade.
 - Dynavax (DVAX). It doesn't pay a dividend.
 
Phase 2: "Scientists give the vaccine to hundreds of people split into groups, such as children and the elderly, to see if the vaccine acts differently in them. These trials further test the vaccine's safety and ability to stimulate the immune system."
 
 - Arcturus Therapeutics (ARCT). It doesn't pay a dividend.
 - Johnson & Johnson (JNJ). It yields 2.75% and has been growing the dividend for decades.
 - Novavax (NVAX). It doesn't pay a dividend.
 
Phase 3: "Scientists give the vaccine to thousands of people and wait to see how many become infected, compared with volunteers who received a placebo. These trials can determine if the vaccine protects against the coronavirus."
 
 - Pfizer: Yields 4% and has been growing the dividend for decades.
 - Moderna. It doesn't pay a dividend.
 - AstraZeneca. It yields 3%, although the dividend hasn't increased in the past three years.
 
For a dividend growth investor like me that wants to seek passive income during retirement, I have four options to choose which company to invest in. The four companies are Merck (Ticker: MRK), Johnson & Johnson (Ticker: JNJ), Pfizer (Ticker: PFE), and AstraZeneca (Ticker: AZN).
 
I decide to remove AstraZeneca from the list since it doesn't grow its dividend, leaving us with MRK, JNJ, and PFE. I only want to choose companies that payout dividends since I'm a dividend growth investor. 
 
As far as the Covid-19 race, it goes with PFE being the frontrunner. If things go well for them, Pfizer could have an approved vaccine for emergency use by October, at which JNJ at best be moving into a Phase 3 trial, and MRK might not even be out of its Phase 1 trial. 
 
After comparing many companies to choose from, Pfizer seems to be the best option. This doesn't mean that Pfizer's vaccine will work or that the other companies don't have the chance to come up with a successful vaccine. But as for now, PFE seems to be the winner at this point. 
 
Now that I have filter to which companies to choose from let's move on to Pfizer's fundamental analysis. I want to explain why Pfizer is an excellent company for dividend investors.


Dividend Strength
Because I am a dividend growth investor, I like to start with the concept of dividend strength. Dividend strength is the cornerstone of our strategy. It is defined by the existence of dividend safety and dividend potential. I want to look for a company having the ability to keep paying dividends through a bad and good time. To the point, I want to make sure that the stock has a safe dividends payout, which can produce a solid level of income. 
 
Dividend Safety: 
Pfizer Inc. has an earnings payout ratio of 60%. This ratio is lower than 38% of US paying dividend stocks. PFE pays 56% of its operating cash flow as a dividend, which is lower than 19% of dividend stocks. Moreover, PFE pays 66% of its free cash flow as a dividend, which is better than 27% of dividend stocks. 
 

Pfizer's payout ratios are not low for no reason. They take up a sizeable amount of the firm's free cash flow. Nonetheless, there is a serious buffer before the dividend would be at risk. The payout ratios have been higher over the past five years as cash flows have been mostly flat, while the dividend has continued to increase. 
 
This is not an issue for dividend stability, but it might soon be a problem for the company to grow the dividend at an attractive rate. Pfizer is a cash-generating machine. Even though the company is considered a mature company, it is still an industry that generates large amounts of cash for the company. Overall, I believe Pfizer's dividend is safe!
 
Dividend Potential: 
Pfizer Inc. has a dividend yield of 4.05%, which is higher than 70% of US dividend-paying stocks. The dividend grew 6% during the last 12 months, which is in line with the company's five-year average dividend growth of 6%. 
 

I feel that yields between 3.5% and 4% are in the sweet spot of dividend growth. If Pfizer removes Upjohn from the mix, it will focus on a strong, fast-growing Biopharmaceutical Company. 
 
This faster-growing company could potentially retransform Pfizer into a higher growing dividend stock. Or a worst-case scenario, it can pursue its 6% annual growth rate for many years ahead. 
 
Dividend Summary: 
Pfizer Inc. has a good score for its dividend. The company is a cash cow and offers a combination of dividend yield and dividend growth potential. Comparing PFE to its peers, Pfizer seems like an outstanding dividend stock to pick. I like Pfizer as a dividend growth stock to be invested in my portfolio. 
 
Stock Fundamental
If the stock is a good investment for a dividend growth investor, what other factors make this stock a buy? I'm going to talk about the valuation, momentum, and quality of this company. Moreover, I will then come up with a conclusion about Pfizer why this company is a buy now. 
 
Valuation: 
 P/E Ratio: Below 15.00x
 P/S Ratio: 4.32x
 P/CFO Ratio: 14.19x
 EV/EBITDA Ratio: 10.78
 ROC: 99.51%
 Dividend Yield: 4.05%
 Buyback Yield: 0.93%
 Shareholder yield: 5.05%
 
Pfizer Inc. has an exciting valuation now. Its P/E ratio is below 15.00x. This is an attractive ratio that Pfizer Inc. has. Warren Buffett, the greatest value investor globally, likes to invest in a company with a P/E ratio below 15. 
 
Moreover, the company also has an EV/EBITDA ratio of 10.78x. By understanding the economic value of PFE, I can determine the value of the business if it's acquired. I like that Enterprise Value measures the company better because it factors in the business' equity with the outstanding debt in the balance sheet. PFE having an EV/EBITDA multiple of 10.78 show that the debt it carries is not high. 
 
Pfizer Inc. has been consistent with increasing its Return on Capital. If you take a look at the ten years history, its ROC has been growing. This shows that the company can be efficient with its capital. The company generates an excellent return to be invested back in the company. I like this because this shows that PFE is an excellent company that produces excellent returns for the company. I compared Pfizer's ROC to its peer, and I can conclude that its performance equally matches. 

 
Furthermore, from the top data, I believe PFE is more undervalued than 73% of the US stock. This is very encouraging for a value investor like me. The stock trades at reasonable multiples of both earnings and cash flows. I felt Pfizer's price is trading at least 10% undervalued.  
 
Momentum: 
Pfizer Inc. trades at $37 range. Most stocks have rallied in the past three months; however, Pfizer has remained flat. This shows that this company has the potential to bounce back if good covid-19 vaccine news comes out. 


Truthfully, I am hoping that this stock remains at the same price range. In fact, it would be better if the stock price goes down in price. This way, I can slowly accumulate more shares of PFE every month. I believe buying PFE at the current price range is an excellent opportunity for a dividend growth investor to accumulate this excellent dividend stock to one's portfolio. 
 
Quality: 
Pfizer Inc. is a great quality company. It's not some unknown companies that people don't know. Its brand is known worldwide and has been in business for a long period. Moreover, the company has excellent business management running. 
 
The company was able to be consistently delivering its earning to the investor. If you look at the company's income statement history, the company always earned profits. The company has never had a net loss within the past 15 years. This indicates that Pfizer Inc. is a great company that still generates earnings no matter what. 


Looking at Pfizer's earning tracking record, let me have confidence that this company will always stay in business. I'm not worried about the company not being able to generate income in the future. This is the kind of company I like to have in my dividend growth portfolio. I want to keep this stock in my portfolio for a long time and have no intention of selling it. 
 
Stock Fundamental Summary: 
Combining different factors of Pfizer Inc., I can conclude that this is a high-quality company. The company's current valuation is attractive to many value investors, such as myself. Sentiment could push the stock higher. Even if they failed to come up with the Covid-19 vaccine, I believe that the stock is still priced reasonably to the company's fundamentals. 
 
Conclusion
The Covid-19 Pandemic has been a disaster for the world economy. As an investor, I have been looking around for stocks I can purchase for my portfolio. This pandemic had become an opportunity for an investor looking at healthcare stocks. This is because the vaccine is needed to be found to solve this pandemic issue. After researching healthcare stocks, I conclude that Pfizer Inc. is the stock for investors looking for value and dividends.
 
Pfizer stock has the potential to go up in value if they succeed in coming up with the Covid-19 vaccine. Even if they failed at this, the company's valuation is still relatively undervalued. I have purchased PFE as one of my portfolio investments, and it is the second-largest position in my portfolio (as of October 22, 2020). 
 
I am buying Pfizer Inc. as an investment that I will hold for a long term period. I am not planning to sell it in near the short term period. If the stock does go down in price, I will accumulate more shares to my portfolio. I believe PFE is going to be an outstanding stock that generates the dividends I always wanted. Its dividend yield is attractive, the dividend looks well-covered, and the growth outlook is not bad.
 
After doing research and analyzing PFE, I felt that this is an excellent buy for value investors. This is not an investment that will make anyone rich over the coming years, but the downside seems very limited, while investors will likely make at least a mid-single-digit return, thanks to the dividend.  I hope this stock analysis article can benefit value investors out there who are looking for a stock to invest in. Pfizer Inc. (Ticker: PFE) is a stock that you can consider investing in. 

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