Please ensure Javascript is enabled for purposes of website accessibility

3 Reasons Pfizer Is the Best Big Pharma Stock to Buy Right Now

By Keith Speights - Mar 31, 2021 at 6:01AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The drugmaker covers all the bases.

Past performance may not be indicative of future results. You'll find that disclaimer on mutual funds and exchange-traded funds, but it also applies to individual stocks. Pfizer (PFE 0.78%) stands out as a great example.

Over the past five years, Pfizer stock has badly underperformed the S&P 500 and many of its peers in the biopharmaceutical industry. However, you can throw that poor performance out the window now, as Pfizer is in a much better position to thrive. I think it's the best big pharma stock to buy right now. Here are three reasons why.

Scientist holding a test tube up with a rack of test tubes in front of him

Image source: Getty Images.

1. Turbocharged growth

Get ready for turbocharged growth from Pfizer. The company thinks its adjusted earnings per share will increase by double-digit percentages annually over the next several years. But that projection doesn't include any impact from COVID-19 programs.

Pfizer and partner BioNTech expect that COVID-19 vaccine sales will top $15 billion this year. That's a really conservative estimate, though, because it includes only supply deals in place as of early February. The actual total could easily surpass $20 billion.

It's looking increasingly more likely that much of Pfizer's COVID-19 vaccine revenue will be recurring. CFO Frank D'Amelio recently stated that annual booster shots will probably be required because of the emergence of new coronavirus variants. 

The company also has other growth drivers, of course. Blockbusters including blood thinner Eliquis and rare-heart-disease drug Vyndaqel continue to deliver strong sales growth. Pfizer has a robust pipeline as well. And the company's track record for clinical testing success over the past five years trounces the industry average success rate.

I'm also optimistic about Pfizer's decision to move forward with messenger RNA (mRNA) vaccine development on its own. The opportunities for mRNA vaccines and therapies are enormous. Going solo with its development efforts, the company will be able to boost its bottom line a lot more than it would with a partner.

2. Dirt-cheap valuation

CEO Albert Bourla said in the company's Q4 conference call that Pfizer "clearly deserves [a] much, much higher multiple in this industry." I think he's right. Pfizer's valuation should be significantly higher than it is. However, this dirt-cheap valuation only makes the stock a better buy right now.

So how cheap is Pfizer? Its shares currently trade at close to 11.4 times expected earnings. By comparison, the S&P 500's forward price-to-earnings multiple stands at nearly 22. 

Sure, the S&P 500 includes some fast-growing tech companies that skew valuations. However, Pfizer is more of a bargain than its direct peers, too. The pharmaceuticals industry as a whole has a forward earnings multiple of 13.3. But most pharmaceutical companies can't look forward to the kind of growth that Pfizer is set to deliver, thanks to its COVID vaccine. 

3. Attractive dividend

Pfizer clearly offers something for growth investors and value investors. But what if you're an income investor? Yep, Pfizer has you covered too.

The big drugmaker's dividend yield currently stands at nearly 4.3%. That's a yield that would attract the attention of nearly every income seeker. And Pfizer's already strong financial position, combined with its solid growth prospects, means it won't have any problems funding its dividend program.

Keep in mind, though, that Pfizer will soon cut its dividend. But don't be alarmed. The company has planned to adjust its payout once Viatris initiates its own dividend, which will happen soon. This action makes sense because Pfizer spun off its Upjohn unit to merge with Mylan to form Viatris back in November. Upjohn wasn't a growth driver for Pfizer, but it did contribute significant cash flow.

Even after the coming dividend cut, however, Pfizer's dividend yield should remain very attractive. And Pfizer will still be the best big pharma stock to buy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Pfizer Inc. Stock Quote
Pfizer Inc.
$52.88 (0.78%) $0.41
BioNTech SE Stock Quote
BioNTech SE
$163.22 (0.14%) $0.22
Viatris Inc. Stock Quote
Viatris Inc.
$11.63 (-1.44%) $0.17

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/23/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.