Out of Pfavor
02/04/2005 12:00 am EST
"The key to buying superior growth is to wait for good stocks to sink to value stock levels," says Gary Alexander. "The hysteria surrounding Celebrex is the trigger that has made Pfizer a value buy." Here’s his review of this out-of-favor drug firm.
"Pfizer (PFE NYSE) is the latest addition to our core buy list. It’s important to realize that when you buy value, you are often buying a handful of scary headlines in the bargain. But when you see the masses over-reacting to a minor scare, then step up to the plate and take your best cut. Pfizer at 11 times earnings is my definition of a ‘fat pitch.’ Pfizer is down over its slightly lower earnings, and conflicting tests from high doses of Celebrex for potential uses against cancer – not its main prescribed use, but in clinical tests. Recent tests conflicted with previous tests, which showed no significant increase in cardiac events.
"In the meantime, fourth quarter 2004 earnings missed analysts’ earnings per share forecast ($0.59) by a penny. I always welcome these penny misses, since the market tends to overreact. According to my math, $0.58 is 1.7% below $0.59. Missing by a penny might justify a 2% drop, but Pfizer is down 36% in the last 12 months, from a $39 peak last February. Later this month (February 16-18), the FDA will hold a meeting to discuss the safety of the Cox-2 inhibitors. While we could wait for all facts to be known before jumping onto Pfizer, but I think the worst possible scenario is reflected in the price, and any good news could boost the shares above $30 fast.
"Even in the worst-case scenario, if Celebrex sales virtually disappeared this year, Pfizer is still a high-quality company with several other blockbusters, plus new drugs in the pipeline. Pfizer also makes the anti-depressant Zoloft, which gained 7% in sales last year. Sales of its flagship drug Lipitor, the world’s top-selling drug, rose 23% last year, and it continues to dominate the cholesterol market. I think the market has already discounted the stock’s worst possible earnings decline for 2005. However, in the five years from 2002 to 2006, Pfizer will file for approval of 20 new drugs, which could generate growth after 2006. To reward us for waiting out the Celebrex crisis, Pfizer raised its quarterly dividend 12%, to $0.19 per share, payable March 8. That means our annual income is over 3%. And you can probably count on more dividend increases in future years."