Shares in Pfizer (NYSE:PFE) are down this year. The stock currently trades around 10% lower than it did at the beginning of January.
I find the decline surprising. I don’t have specialist pharmaceutical knowledge – and that brings a degree of risk to an investment in Pfizer stock – but I can’t see that anything has been going significantly wrong with the business.
On the contrary, Pfizer seems to me to be going from strength to strength. Here are three reasons why I think that Pfizer stock might might be a great buy for my portfolio.
Growth
Pfizer has been working hard to grow its drug portfolio lately. Specifically, it’s been using the money it generated from its COVID-19 vaccine to make acquisitions.
The details of Pfizer’s acquisitions might be difficult for non-specialists like me to evaluate. But the important thing, to my mind, is that the company is investing in growth for the future.
Pfizer’s COVID-19 success also seems to be ongoing. Recent approval of its antiviral pill and the use of its vaccines in boosters for under-11s in the US looks set to generate significant cash for the business going forward.
Accordingly, the first reason I think Pfizer looks like a great investment opportunity for me is its ability to generate cash in the future.
Low P/E ratio
Pfizer stock currently trades at a price-to-earnings (P/E) multiple of just over 11. That’s significantly lower than the S&P 500 average, which is around 18.
Normally, I wouldn’t over-emphasise the importance of a low P/E ratio. But I think it might be significant in the current climate.
Rising interest rates have been exerting pressure on share prices this year. As interest rates increase, stocks that trade at higher P/E multiples start to look expensive.
By contrast, stocks with lower P/E ratios are shielded from this effect somewhat. The fact that Pfizer’s shares trade at a low P/E ratio is therefore my second reason for thinking that the stock could be a great investment for me.
Investment returns
In my view, Pfizer has a good record both as a company and as a stock. Over the last five years, Pfizer stock has been a solid investment.
The share price has increased by 65.8% since June 2017 and Pfizer has paid out $9.64 per share in dividends to shareholders. In addition, Pfizer shareholders received stock in Viatris, worth around $1 per share as a result of Pfizer disposing of its generic drug unit.
Past performance are not always indicative of future returns and there’s a risk that Pfizer might struggle to maintain its momentum. But I think that Pfizer’s historic success is indicative of a strong business and a competent management team that will set the company in good stead for the future.
Conclusion: a stock to buy?
I’d be happy buying shares in Pfizer at today’s prices for my portfolio. While pharmaceutical companies are complicated, I think there are reasons to think that the stock could perform well over time.
Pfizer is making investments in its drug portfolio, trading at a reasonable price, and looks like a strong operation with a capable management team. That’s enough for me.