Dear Mr. Berko: I know that you like Pfizer because you just put the stock in my sisters account.
Dear Mr. Berko: I know that you like Pfizer because you just put the stock in my sisters account. Did you know that Pfizer will lose its patent on Lipitor (its largest drug)? Did you know that Pfizers blockbuster drug, Celebrex, is losing sales because it might have the same effect on people as Vioxx? Did you know that Lipitor is the subject of two class action suits that could do to Pfizer what Vioxx did to Merck? Did you know that in the coming years Pfizer will lose billions of dollars in revenues due to generic versions of its popular Zithromax, Zoloft and Zyrtec?
With all of those negatives, and more, why do you like Pfizer? I think you are making a mistake with your Pfizer position. You better be careful.
Dear D.L.: Ive been a Pfizer Inc. (PFE-$22.87) admirer since 1998, when I bought the stock (adjusted for a 3-for-1 split) at $24.85. Well, I still own Pfizer, and so do many of the accounts we manage. Pfizer shares are trading at valuations I havent seen in 25 years, and it trades at a sharp discount to the overall market, as well as its peers. I believe it would be difficult to find a stock that has PFEs potential to prosper in the next three to five years.
PFE has 10 drugs, each with annual revenues that exceed $1 billion. PFE also owns 15 of the worlds top-selling medicines, and eight of those 15 medications are the top sellers in their therapeutic classes.
PFE will introduce six new medications this year, three of which are likely to be billion-dollar blockbusters: Sutent (for cancer), Exubra (an insulin inhaler) and Champix (smoking cessation), which Im told has minimal side effects and really works.
Im told that the brilliant Pfizer research people have 160 novel compounds in their fecund pipeline, and 22 of them have potential to become billion-dollar blockbusters. Now thats impressive.
PFE is one of the finest and most respected drug companies in the world. It trades at an embarrassing 11 times this years earnings of $2.02, pays a 96-cent dividend that yields 4.2 percent, has $22 billion in cash, and has a cash flow of more than $20 billion, which should continue to the foreseeable future.
Yes, I know that PFEs Lipitor goes off patent in 2011 and that Lipitor is a huge cash cow. But did you know that Torceptrapib (a new anti-cholesterol drug) reported uncommonly impressive results in recent clinical trails? The PFE folks believe that Torceptrapib (theyll give it a pronounceable name when it debuts) is better than Lipitor by a small order of magnitude, and its expected to become a super blockbuster. And yes, I know that Celebrex has been a substantial source of pain for PFE, but sales began to rebound briskly earlier this year.
While all of this and all of the above are baking, cooking, boiling and broiling, management just introduced an impressive cost-cutting program that should reduce expenses by at least $4 billion a year. A source at PFE headquarters tells me that hes flabbergasted it took those boneheads this long because those savings are so obvious. This savings improves earnings by 55 cents to 60 cents a share. Now thats really impressive.
Also impressive are the facts that PFEs dividend should continue to grow, net profit margins are setting new records, long-term debt continues to decrease, cash flow and operating margins are surging, shareholder equity continues to improve, and earnings are expected to reach a new high next year.
Pfizer appears to have superb numbers and an attractive future. And yes, I know that Lipitor is the subject of two lawsuits claiming nervous system damage and memory loss. However, those claims are the ministrations of a vomitous group of hungry postulant lawyers who cant earn a living in their hometowns. The science supporting those allegations seems impressively weak, and PFE will drop a few million in the trough to make the legal scavengers fade away. Its certainly less time-consuming and cheaper than spending $30 million and years in court fighting against the pestilential abundance of prowling pettifoggers.
PFE is a value stock, a growth stock, a medical tech stock and an income stock all rolled into one which is a rare combination! Lipitor and Celebrex aside, I believe every growth and income portfolio should own Pfizer. Theres little downside at this price, the bad news is out, and there is good news on the horizon.
And, oh yes, PFE may sell its consumer products division that sells brands such as Listerine and Lubriderm. The potential buyers are Glaxo, Johnson & Johnson and Reckitt Benchiser, a British outfit. This could put $14 billion in PFEs bank account, which aint chopped liver. PFE is a classy long-term investment, and Im stone ginger certain of that.
Malcolm Berko responds to letters he receives; send questions to Berko, c/o Central Penn Business Journal, P.O. Box 1416, Boca Raton, Fla. 33429. He answers questions by mail or in his column for free. If readers want in-depth analyses, they may be asked to become clients.
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