NOTE: I have revised this post to include links and further extra information. If you read the post earlier, it may be worth a re-read.
I remember Jim talking about ‘pounding the table’ regarding … Dollar tree I think?
I would like to share a table-pounding idea back in return. Actually I think this is my favourite idea for some time: Pfizer bought at its current price. What follows is opinion, please double-check it for yourself. Also, disclaimer: I bought some Pfizer stock for my account already before posting this.
The argument looks like this:
Technical analysis: Sitting less than 1% above a support at 41.4, for the last 18 months. Or put more simply, as cheap as it’s been in a long time.
Fundamental analysis: low price/earnings, whether you choose forward earnings, current year, etc. Good yield. Low debt. Spare cash.
Risks: Low? Has a variety of products; 170+ year history; has recently made enough cash to offset all past debt thanks to paxlovid and covid vaccines. It’s a large blue chip company. There is a question of ‘what replaces older products that fall off the patent cliff’ and ‘what if covid just fades away’, but even assuming earnings go back to their pre-covid trend (but with net debt now wiped out), the price is still good and the risk is low. Interest rate/recession risk is almost non-existent. Energy crisis / war risk is non-existent. China/Russia risk is non-existent. Some acquisitions going on, but that seems to be the norm for big pharma. Perhaps some amazing new covid vaccine or treatment will come along and render paxlovid/mrna vaccines obsolete? Perhaps paxlovid will stop working against new strains of covid?
“Broad market crash” risk? As a defensive, Pfizer performed well the last time the market crashed.
Moat: Pfizer has executed better than any other pharmaceutical company in the world w.r.t to covid. Has a monopoly on paxlovid and shared duopoly on MRNA vaccines. Moat is also improving because competitors are failing/disappearing:
a) Regeneron/Evusheld (monoclonal antibodies) - if I understand correctly, the original covid monoclonal antibodies don’t work against modern strains, and I think some/most are no longer authorised for use? (e.g. see below)
Covid now mutates at such a rate (and with such a diversity of strains) that it is hard to imagine finding and producing and distributing monoclonal antibodies can be effective in a suitable timeframe. mAbs are also a very expensive treatment relative to paxlovid and especially relative to vaccination/boosters. I do not think we will see new mAb options for covid treatment any time soon.
b) non-MRNA vaccines, so far have proven neither as popular or as successful as MRNA vaccines.
c) Merck’s molnupavir, a primary rival to Pfizer’s paxlovid, has the alarming quality of increasing covid mutation rates. Some scientists & doctors are calling for it not to be used. Questions are also being raised over whether it actually helps much. Articles below are all from February 2023.
Nature: “COVID drug drives viral mutations — and now some want to halt its use”
and most concerningly:
“The findings also implied that, in at least some instances, viruses with a high number of molnupiravir-induced mutations have been transmitted to other persons, albeit in a restricted manner.”
Basically, Pfizer is in a relatively good situation in terms of business execution, risk, finances and competition. Yet the price is a hair’s breadth away from the cheapest price in almost 2 years.
We face the risk of a broad market downturn and Pfizer has performed well under that circumstance in the past.
We face the risk of covid/bird flu crises and Pfizer has performed well under that circumstance in the past.
The ideal situation is for something to now trigger a change of sentiment and get the ball rolling in the upwards direction. Perhaps simply bouncing off the TA support / 18 month low will be enough by itself. Or, since Covid has been coming back like clockwork every 6 months or so, I’d suggest that will probably be a trigger - along with an associated revision upwards to expected earnings for 2023. Or perhaps a bird flu panic might bring market attention back to big pharma?
It’s also possible we’ll see a rotation into defensives generally if the market goes a bit risk-off, that will get the momentum sheep on board. Perhaps Pfizer will take some corporate action that triggers attention in the media.
Who knows? Whatever the trigger might be, my hope is to see the stock run quickly from $41.70 to about $55-60 again.
As a final note, if I recall correctly, Jim had a view that any stock, growth or value, which is extremely likely to a) still be in business and b) be on a PER under 10, in 5 years time, relative to the price of purchase, is probably a decent bet.
With no net debt and PER somewhere between 8-13x right now, and almost 4% dividend available to be reinvested to reduce the effective PER in 5 years time even further - plus a very high chance of resurgences of covid in the next 5 years that require new vaccines and more paxlovid doses than expected - I believe Pfizer qualifies very well on the ‘5 year single digit PER’ rule.
I welcome amendments/corrections/additions to the above thoughts, and I recommend that if this idea catches your attention, you should quickly research this for yourself and check if the ideas here are correct.
p.s. The last time Pfizer got to this level, a few months ago, it certainly didn’t stay there very long, just minutes. I recall the day with considerable dismay. I was waiting to pile in at 41.5, but it bounced at 41.75 I think, and the next stop was… $54. Very, very, very frustrating!