Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Tech vs. Pharma

Over the weekend, Barron's ran a must-read story on the beleaguered pharmaceutical sector and its compelling value relative to the red-hot tech sector. Entitled "Good Medicine" (subscription required), author Andrew Bary challenges the notion of paying 28.4 times expected earnings for Intel (Nasdaq: INTC  ) when Pfizer (NYSE: PFE  ) sells for only half that multiple.

Comparing these two stalwarts, he writes:

It's worth comparing Pfizer to Intel, both mature and highly profitable industry leaders with roughly the same stock prices and market values. Pfizer trades for 30 and Intel 28, the latter having gained 80% this year. Pfizer is likely to have two times Intel's profits per share next year. So to justify buying Intel rather than Pfizer, investors have to assume Intel can more than double its earnings from $1 a share over a multi-year period, an unlikely event given Intel's sizable sales base of $28 billion and its lofty 55% gross margins.

This is truly incredible. Intel is priced like a dynamic growth company, while Pfizer carries the valuation of a mature, nothing-special restaurant chain. Hello, Intel's projected sales this year of $29.5 billion are no more than what the company delivered in 1999! In contrast, while Pfizer has undertaken two major acquisitions over the past few years, the company has still managed to deliver better than 20% average growth in earnings per share.

Of course, Bary's point goes beyond the specifics of Pfizer and Intel -- these two companies just happen to encapsulate investors' voracious appetite for tech stocks and no-thanks attitude toward pharma. Investors, in their desire to get exposure to the economic recovery, have understandably preferred technology names over the more defensive pharmaceuticals. But this strategy can only work up to a point -- and that point comes when you get the type of disconnects in valuation that are now apparent in Intel and Pfizer.

Caveat emptor to those who continue their tech love affair at any price.

At time of publication, Matt Richey was long Pfizer via call options.

Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 499093, ~/Articles/ArticleHandler.aspx, 10/22/2016 2:00:08 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 16 hours ago Sponsored by:
DOW 18,145.71 -16.64 -0.09%
S&P 500 2,141.16 -0.18 -0.01%
NASD 5,257.40 15.57 0.30%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/21/2016 3:59 PM
INTC $35.15 Down -0.28 -0.79%
Intel CAPS Rating: ****
PFE $32.18 Down -0.36 -1.11%
Pfizer CAPS Rating: ****