Our Pfizer Stock Prediction In 2019 (Buy or Sell?)

Like the Sirens sweetly singing, the biotech industry entices investors… sometimes to their doom. Fledgling biotechs are known for showing exciting promise and then crashing, either because they couldn’t get their drugs through the regulatory gauntlet or they ran out of cash.

If you want to tap the drug industry’s huge growth potential, but without the nerve-wracking risk, consider the cash-rich Big Pharma players. They may not be “rocket stocks,” but these mega-cap firms won’t blow up on the launch pad, either.

Pharmaceutical companies are benefiting this year from increasing drug approvals, new product launches, promising pipelines, and muted regulatory disruption so far from the Trump administration.

One drug industry stalwart that belongs on your radar screen is Pfizer (NYSE: PFE), maker of that infamous blue pill, Viagra. With annual revenue in 2018 of $53.6 billion, Pfizer is the world’s second-largest pharmaceutical company in prescription drug sales.

Founded in 1849, Pfizer retains exclusive rights to many of the top drugs in the world and it has proved adept in coming up with new money-making products. However, as with the rest of the biopharmaceutical industry, Pfizer faces serious headwinds that can’t be ignored, including competition from small biotech “disruptors.”

Should you buy or avoid Pfizer in 2019? Let’s take a look.

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What Is Pfizer?

Based in New York City, Pfizer develops and produces medicines and vaccines in the fields of immunology, oncology, cardiology, endocrinology, and neurology.

Pfizer (market cap: $235.3 billion) makes a wide variety of blockbuster drugs, including Lipitor to lower blood cholesterol; Lyrica for neuropathic pain; Diflucan, an oral antifungal medication; Zithromax, an antibiotic; Celebrex, an anti-inflammatory drug; and Viagra for erectile dysfunction.

Pfizer’s sales are divided roughly equally between the U.S. and the rest of the world (16% Europe and 13% developed non-European countries), with emerging markets accounting for about 20%.

The loss of key patents covering Lipitor and Celebrex packed unwanted punishment to Pfizer’s top and bottom lines. Viagra loses patent protection in 2020 but copy-cat drugs already are eroding sales.

In this video, former Pfizer CEO Ian Read discusses health and drug industry trends. Read was succeeded this year by Albert Bourla.

How Has Pfizer Stock Performed?

  • Over the past 12 months, Pfizer has gained 16.7% compared to a 5.2% gain for the S&P 500.
  • Over the past two years, Pfizer has gained 23.8% compared to a 20.8% gain for the S&P 500.
  • Over the past five years, Pfizer has gained 32.8%, the S&P 500 has gained 53.6%, and the benchmark iShares U.S. Pharmaceuticals ETF (IHE) has gained 24.5%.

How Has Pfizer Stock Performed In 2017/2018?

  • In 2017, Pfizer gained 9.7% and the S&P 500 gained 19.4%.
  • In 2018, Pfizer gained 18.9% and the S&P 500 lost 7.5%.

Who Are Pfizer’s Rivals?

Abbott Laboratories (NYSE: ABT)

With a market cap of $140.9 billion, Abbott Laboratories is one of the world’s largest producers of prescription drugs, diagnostic tests and vision care products.

Based in Abbott Park, Illinois, Abbott operates across four business segments: Branded Generics, Medical Devices, Diagnostics and Nutrition. These businesses provide a diversified customer base and payer mix.

The company’s drug portfolio includes Humira, for rheumatoid arthritis, psoriatic arthritis, Crohn’s disease, and psoriasis; Norvir, for HIV; Depakote, an anticonvulsant; and Synthroid, a synthetic thyroid hormone.

Abbott offers a wide range of medical devices and diagnostic tests used worldwide by doctor’s offices, hospitals, laboratories, and blood banks to diagnose, monitor and treat diseases such as cancer, HIV, hepatitis, heart failure and metabolic disorders.

Read This Story: Our Abbott Stock Prediction In 2019 (Buy or Sell?)

Merck (NYSE: MRK)

Merck (market cap: $213.7 billion) has been a solid performer in the health care field for decades. The company operates in four segments: Pharmaceutical, Animal Health, Healthcare Services, and Alliances.

The company offers treatments for cardiovascular diseases, diabetes, asthma, nasal allergy symptoms, chronic hepatitis C, HIV-1 infection, and other ailments.

Merck is well-known for producing such widely advertised medicines as Vytorin (cholesterol) and Fosamax (osteoporosis).

Based in Kenilworth, New Jersey, Merck is a leader in producing effective anti-cancer medicines and therapies. A standout drug for Merck is Keytruda, for the treatment of patients with recurrent or metastatic cancer.

Bristol-Myers Squibb (NYSE: BMY)

This drug giant (market cap: $79.9 billion) makes a wide range of drug treatments for several diseases and ailments, including cancer, cardiovascular disease, diabetes, hepatitis, rheumatoid arthritis, and HIV/AIDS.

Notably, Bristol-Myers Squibb makes anti-cancer drug Taxol that’s under study for reducing tumor growth.

Taxol is a cancer chemotherapy medication that interferes with the growth of cancer cells and slows their growth and spread in the body.

In January 2019, Bristol-Myers Squibb announced it would acquire Celgene (NSDQ: CELG) for $74 billion, in a deal that would be the largest pharmaceutical company acquisition in history. However, the deal faces opposition from activist investors who worry that the size of the combined entity will impede growth.

Pfizer faces competition from several other drug firms, from clinical stage start-ups to well-established mega-caps.

Read This Story: Our AbbVie Stock Prediction in 2019 (Buy or Sell?)

Will Pfizer Go Up In 2019 (Should You Buy)?

Pfizer has proven its ability to grow both by coming up with new products and by making well-timed acquisitions of potential rivals. Pfizer also appears to have put the worst of its patent exclusivity issues in the rear view mirror.

Pfizer’s underlying financial numbers are good, including a long-term debt-to-equity ratio of 0.52, most recent quarter (MRQ), lower than the industry average of 0.73 and the S&P 500 average of 0.95. Most important for a drug maker, Pfizer’s research pipeline has a strong track record. In 2018, Pfizer spent more than $8 billion on research.

A robust pipeline is vital for pharmaceutical companies, because it can take about 20 years and $1 billion to create a new drug and usher it through the testing and approval process.

Viagra has been a blockbuster for Pfizer, but sales growth of the blue pill has been waning due to fierce competition from generic versions. To tap future growth in a crowded drug market, Pfizer is targeting lower-profile conditions, like eczema, a skin inflammation that affects 18 million to 25 million Americans.

A crucial catalyst for global growth among Big Pharma stocks is a rising middle class in developing nations that’s spending more money on their quality of life. Few personal necessities rank higher than health care and pharmaceuticals.

According to research firm Evaluate, worldwide prescription drug sales are projected to grow 6.4% annually through 2024 (see chart).

Meanwhile, the broad drug manufacturing sector itself is in the throes of sweeping consolidation. Torrid growth in the U.S. generics market will finally slow, as fewer branded drugs come off patent over the next decade. Drug companies also must contend with cost containment measures in the U.S. and western Europe that weigh on pricing.

Pfizer is benefiting from proactive management that’s forging expansion strategies, especially through acquisitions that bring the company into new global markets and drug treatment categories.

Pfizer has been in acquisition mode and a buying spree could be on the way this year, to ensure organic growth.

Pfizer has acquired 29 organizations. In 2016, the company bought Medivation for $14 billion. Adding Medivation gave Pfizer three promising drugs in the oncology market, which is projected to grow 7.5% to 10.5% annually through 2020.

In 2018, Pfizer announced a joint merger of its consumer health care division with UK-based pharmaceutical giant GlaxoSmithKline (NYSE: GSK).

Pfizer boasts a strong balance sheet, with $18.9 billion in cash on hand (MRQ). That’s a powerful war chest with which to play offense in a rapidly consolidating industry. Free cash flow in 2018 came to a robust $13.7 billion.

Which brings me to the stock’s dividend. It’s from free cash flow that dividends are paid and PFE currently boasts a dividend yield of 3.44%, well above the S&P 500 average of 1.89%.

Pfizer’s forward 12-month price-to-earnings ratio (FPE) is 13.7, a bargain compared to the S&P 500’s FPE of 17.5 and roughly in line with the FPEs of rivals ABT (10.8), MRK (15.7), and BMY (10.8). PFE’s valuation is greatly cheaper than many smaller biotech companies that are fad stocks with little or no earnings.

Will Pfizer Go Down In 2019 (Should You Sell)?

Let’s examine the bear case against Pfizer.

Biotechnology is inherently volatile; a poor showing in a clinical trial or a thumbs down from the U.S. Food and Drug Administration (FDA) can torpedo a stock like PFE.

Meanwhile, as patents expire, the pressure for drug companies to find untapped opportunities is fierce. Merger and acquisition activity is picking up in the biotech realm. Today’s winners can quickly become tomorrow’s losers.

Smaller biotech firms that are pioneering cutting-edge treatments via such fields as gene-splicing and immunology pose risks to Big Pharma. The mega-cap drug firms can be stodgy compared to the biotech upstarts.

Greater regulatory oversight is another risk. With the U.S. House of Representatives under Democratic control, you can expect more hearings into supposed “price gouging” of drug companies, with the continual threat of price controls and regulatory sanctions.

Overall Pfizer Forecast And Prediction For 2019

Certain products have inelastic demand, which means people always need them. The companies that make these products are buy-and-hold gems. Pharmaceuticals fall into this category.

In turbulent times like these, stick with companies that make the essentials — that means companies like Pfizer.

Sure, politicians like to bash the drug companies. But restrictive regulations on drug companies are unlikely for at least the next two years, as divided rule in Washington descends into gridlock. From the long term perspective, Pfizer is co-opting smaller biotechs by either acquiring or partnering with them.

Latest case in point: In March 2019, Pfizer joined forces with Vivet Therapeutics, a private French biotech firm that focuses on developing gene therapy treatments for inherited liver disorders that tend to resist conventional treatment. Pfizer acquired a 15% equity interest in Vivet and secured an exclusive option to acquire all outstanding shares.

Pfizer continues to lay the groundwork for future dominance of the pharmaceutical industry. With a bargain valuation, rock-solid balance sheet, attractive dividend yield, and strong growth prospects, Pfizer could be just the prescription for your portfolio.

John Persinos is the managing editor of Investing Daily.