The U.S. equity market has been quite volatile in January 2022. Rising omicron cases, sticky inflation, which is expected to result in rate hikes, and now weaker-than-anticipated earnings results for tech stocks have negatively affected investor sentiment. Against this backdrop, CNBC's Jim Cramer expects the S&P 500 to continue to face challenging times even in early February.
While short- to mid-term investors may need to brace themselves for continued rockiness in the market in 2022, those with multiyear investment horizons can use this correction to get their hands on some financially stable and fundamentally resilient stocks at reasonable valuations. Qualcomm (QCOM 0.73%) and Pfizer (PFE 0.23%) are two such picks that have the potential to provide solid returns for retail investors in the long run.
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1. Qualcomm
Shares of leading mobile chipmaker Qualcomm are currently up by more than 36% from their 52-week low of $122.17 on Oct. 12. The company has reported stronger-than-expected fourth-quarter results for fiscal 2021 (ending Sep. 26, 2021). Both revenues and earnings surpassed consensus estimates, a commendable feat in times of significant supply-chain constraints.
According to Grand View Research, the global 5G chipset market is expected to grow to $66.45 billion in 2028, with a compound annual growth rate (CAGR) of 69.1% from 2021 to 2028. Since it is not yet possible to make a top-tier 5G phone without Qualcomm chipsets, the company stands to benefit dramatically from the ongoing 5G device upgrade cycle.
According to Counterpoint, Qualcomm accounted for 27% market share in the global smartphone application-processor market, while MediaTek was the leader with 40% market share in the third quarter ending Sep. 30, 2021. However, MediaTek is more focused on low and mid-tier 5G portfolios, while Qualcomm is dominating the 5G baseband modem segment with a 62% market share. The multisourcing of components from chip manufacturers Taiwan Semiconductor Manufacturing and Samsung, coupled with the launch of the Snapdragon 4, 6, and 7 series, is expected to further strengthen Qualcomm's positioning in the 5G smartphone market.
With handsets accounting for around 50% of Qualcomm's total business, investors are rightly concerned about Apple cutting out Qualcomm and instead opting for in-house development of iPhone chips. However, while challenging, this may not prove catastrophic for Qualcomm considering that Apple accounted for only a 15.2% share of the global smartphone market in the third quarter.
Additionally, Qualcomm is also diversifying rapidly in the non-handset markets, such as automotive connectivity and the Internet of Things (IoT). The company's chips are used for enabling next-generation connectivity services, such as infotainment, precise positioning, security, Bluetooth, and Wi-Fi (in-vehicle and vehicle-to-cloud) in automobiles. This is a huge market opportunity, considering that embedded cellular connectivity is expected to be present in almost 75% of all vehicles sold in 2027, up from only 20% in 2015. Qualcomm's processors, modems, and networking solutions are now being increasingly used in IoT devices.
Qualcomm is a highly profitable, cash-rich, and dividend-paying technology company. Against the backdrop of its leading position in the booming 5G market and its focused diversification strategy, the stock seems to be a solid buy even after a significant share-price rally.
2. Pfizer
Biopharma giant Pfizer's shares have rallied by over 44% in the past year, mainly due to the stupendous success of its coronavirus mRNA vaccine Comirnaty, developed in collaboration with German partner BioNTech. Pfizer now expects COVID-19 vaccine revenues to be $36 billion, almost 44% of its total company revenue guidance at the midpoint for fiscal 2021 (ending Dec. 31, 2021). With new COVID-19 variants emerging and extending the pandemic, the demand for Pfizer's vaccines will continue to remain strong. In fact, the company has guided for $29 billion worth of revenues from sales of Comirnaty for fiscal 2022. Although lower than the fiscal 2021 figure, this is still a robust number. Comirnaty will most likely continue to report blockbuster sales in the next few years due to demand for booster doses and vaccination for younger children.
Additionally, Pfizer stands to make a goodly amount of cash from its COVID-19 treatment pill, Paxlovid. Having already secured U.S. Food and Drug Administration's Emergency Use Authorization, Pfizer is now aiming to manufacture 120 million courses of the drug in 2022. Cantor Fitzgerald's Louise Chen has estimated Paxlovid's peak annual sales to range between $50 billion to $60 billion. The drug, according to Chen, will continue to bring in as much as $25 billion in annual revenues even in 2027. These numbers seem achievable, especially when you consider that many vaccine-hesitant people are likely to start opting for a highly effective yet simple COVID-19 pill.
Besides the COVID-19 franchise, Pfizer also has several other blockbuster medications, such as blood thinner Eliquis, the breast cancer drug Ibrance, and cardiovascular drugs Vyndaqel/Vyndamax. The company has guided for revenues to achieve a CAGR of at least 6% and the bottom line to grow at a double-digit rate till 2025 without additional earnings from COVID-19 vaccine or other mRNA programs.
PFE PE Ratio (Forward) data by YCharts
Despite the solid growth prospects, Pfizer trades at only 8.3 times forward earnings, significantly lower than peers, such as Merck, Johnson & Johnson, and AbbVie. Hence, the company seems like a solid bargain for retail investors.
