This article was updated on June 9, 2017, and originally published on Jan. 29, 2017.
Buy and hold really hasn't been great advice in the past when it comes to owning Pfizer (NYSE:PFE) stock. Although the big drugmaker's stock has posted decent gains over the last six years, Pfizer's share price still hasn't regained where it was in 2000.
But things are different now for the company than they were in the early years of the 21st century. Here are three reasons investors should buy Pfizer stock now and never sell.
Back in 2000, one drug, Lipitor, accounted for 17% of Pfizer's total revenue. Six drugs generated almost half of the company's total revenue. Today, Pfizer's top-selling product, pneumococcal conjugate vaccine Prevnar/Prevnar 13, makes up less than 12% of Pfizer's total revenue. The company's top six products produce less than a third of total revenue.
At the beginning of the century, Pfizer focused primarily on three therapeutic categories: cardiovascular diseases, infectious diseases, and central nervous system disorders. The company also had a consumer products segment and an animal health business -- neither of which were growing sales much.
In 2013, Pfizer spun off its animal health business into a separate entity, Zoetis. (By the way, Zoetis has performed quite well on its own -- much better than Pfizer has since the spin-off.) The company has also reportedly considering either selling or spinning off its consumer healthcare business.
More important, Pfizer has expanded its focus into additional therapeutic areas. The company is now developing diabetes drugs, autoimmune disease drugs, rare-disease drugs, biosimilars, and (perhaps the most significant of all) cancer drugs.
What this means for investors is that Pfizer is much more diversified than in the past -- both in terms of dependency on top-selling drugs and in areas of focus. That expands Pfizer's growth opportunities while reducing its risk.
This expansion into new therapeutic areas highlights another reason to buy and never sell Pfizer stock: the company's innovation. It's good to look at innovation in a couple of key ways.
Internal research and development is, of course, very important for Pfizer's long-term future. Pfizer lays claim to perhaps the strongest pipeline in the company's history. The company has over 90 clinical programs. Just under half of those are either in late-stage development or in the regulatory approval process.
Another aspect of innovation, though, is externally focused. Pfizer is aggressively moving to develop partnerships and to make strategic acquisitions that enhance its ability to launch successful drugs.
One key partnership is with Opko Health (NASDAQ:OPK). Pfizer paid $295 million upfront to Opko in 2015 to license long-acting human growth hormone hGH-CTP. Opko experienced a clinical setback recently with hGH-CTP, but still thinks it can ultimately win regulatory approval. Even if it doesn't, the deal underscores how Pfizer is actively expanding its opportunities while limiting its financial risks.
Pfizer has also been on a major buying spree. The company bought Anacor Pharmaceuticals last year, picking up promising atopic dermatitis drug Eucrisa. Pfizer fought off several big drugmakers to acquire Medivation. The transaction gave Pfizer another fast-growing cancer drug, Xtandi, to add to its oncology portfolio.
There's an old saying that the tiger that doesn't prowl is a potential rug. Pfizer is on the prowl internally and externally, probably more so than ever. Individual drugs will come and go, but a company that continually innovates should keep growing.
Pfizer CFO Frank D'Amelio noted at the J.P. Morgan Healthcare Conference in early 2017 that the company has been returning a lot of money to shareholders in the form of stock buybacks. He also stated that Pfizer's "dividend is an important part to our investing thesis." Pfizer clearly prioritizes rewarding shareholders, and that "priority hasn't changed," according to D'Amelio.
Investors should be happy with those statements. Pfizer's prioritization of its dividend is especially encouraging. The current dividend yield of just under 4% is one of the most attractive things about buying Pfizer stock.
Even if Pfizer's share price only grows at a puny 3% annual rate, an investment in the stock today would nearly double in 10 years. The good news is that thanks to the company's pipeline and acquisitions, Pfizer's earnings should grow much faster than that.
Never say never?
Should you really buy Pfizer and never sell? I'd go with the same qualification that legendary investor Warren Buffett used in his letter to Berkshire Hathaway shareholders in 1988: "When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever."
The key words from Buffett are "outstanding business with outstanding managements." I think that Pfizer currently is an outstanding business with outstanding management. If it changes, though, selling the stock might be prudent. For now, holding Pfizer for the long run appears to be a winning strategy.