Two maxims illustrate the dilemma investors face when considering buying distressed stocks.
These famous sayings seem contradictory. However, when interpreted in the correct context, this is not the case. Some falling stocks have poor underlying businesses and should be avoided like falling knives. Other companies have strong underlying businesses and may recover over time.
I think pfizer (New York Stock Exchange: PFE) It falls into the latter category.this S&P500 Dividend stocks can be the worst news on the market.
Bad news, even worse news
Indeed, a quick look at Pfizer's stock price chart shows far more “knife drops'' than “plunge drops.'' Shares of major pharmaceutical companies have fallen 35% in the past 12 months, while the S&P 500 index has soared nearly 25%.
The bad news for Pfizer began with a decline in revenue due to the coronavirus pandemic. Last year, sales of the company's COVID-19 vaccine, Comilnati, fell by 70%, and sales of its oral COVID-19 treatment, Paxrobid, plummeted by 92%. The company expects combined sales of the two products to decline further by 36% in 2024.
More bad news unrelated to COVID-19 is on the horizon. Pfizer faces a patent cliff. Eight of his products are scheduled to lose U.S. patent exclusivity by 2030. These products include some of the company's best-selling drugs such as Eliquis, Ibrance, Xtandi, and Vyndaquel.
How hard will this loss of exclusivity hurt Pfizer? Big Pharma estimates it will impact revenue by about $17 billion annually by 2030. To put that number into perspective, the company's total revenue last year was approximately $55.5 billion.
sunlight shining through dark clouds
Now, some good news. Pfizer has a few rays of sunshine breaking through the dark clouds.
First, the company has had great success in gaining approvals for new products and new indications for existing products. In 2023, Pfizer received nine new drug and vaccine approvals from the U.S. Food and Drug Administration (FDA), a record high.
The company expects new product and indication launches made through the first half of this year to increase annual revenue by approximately $20 billion by 2030. Note that this is a risk-adjusted forecast and significantly outweighs the expected negative revenue impact of the looming patent cliff. .
Second, big drug companies are busy cannibalizing small drug companies. Pfizer's purchase of Seagen was worth $43 billion, so it wasn't a small deal. The company believes its business development agreements will generate $25 billion in new annual revenue by 2030.
Third, Pfizer should be developing other new drugs that are not included in either of the previous two predictions. For example, the promising cancer drug zicitamab vedotin and the influenza vaccine PF-07252220 are being evaluated in late-stage clinical studies.
Who buys the best bad news on the market?
Pfizer's exceptional dividend yield of 6.3% cannot be overlooked. Based on comments from Pfizer CFO Dave Denton on Pfizer's fourth-quarter earnings call, the dividend is likely to increase. With such a high yield, Pfizer doesn't need to realize significant share price appreciation to provide investors with an attractive total return.
Not surprisingly, Pfizer's valuation also looks attractive. The stock is currently trading at a forward P/E ratio of 12.7 times. By comparison, the S&P 500 Healthcare sector has a forward earnings multiple of 18.5x.
Is Pfizer really the market's best buy on bad news? I just think that might be the case.
Should you invest $1,000 in Pfizer right now?
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Keith Speights has a position at Pfizer. The Motley Fool has a position in and recommends Pfizer. The Motley Fool has a disclosure policy.
This S&P 500 Dividend Stock Could Be the Market's Most Bad News Buy Original article was published by The Motley Fool
