If you're in the process of rebalancing your portfolio, you might be considering buying Pfizer (PFE 0.55%) stock. After all, the drugmaker pays a sizzling 5.92% dividend yield, its shares trade at under 13 times forward earnings, and it has a robust clinical pipeline, with 83 programs in development. Pfizer's recent acquisition of Seagen also puts it in the top tier of antibody-drug conjugate manufacturers, a space forecast to grow by double digits over the next five years.
However, Pfizer is also coming off a bad year, commercially speaking. The company's COVID-19 product sales underwhelmed investors and some new product launches -- such as its respiratory syncytial virus vaccine, Abrysvo -- missed internal sales targets. With this brief background in mind, here are two reasons to consider buying shares of the pharma titan, and one reason it might be wise to stick to the sidelines.
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Two reasons to buy, one to avoid
One reason to buy Pfizer is its shareholder-friendly capital allocation strategy. The company pays a solid dividend that has increased every year for more than a decade, and it also repurchases shares regularly to boost earnings per share. Over the last 20 years, for instance, Pfizer has reduced its outstanding share count by an impressive 26%. Its top-tier shareholder rewards program has helped the company's stock beat the broader market over several multiyear stretches in the past 20 years, although its poor showing last year dramatically dampened its long-term performance.
PFE Total Return Level data by YCharts
Another reason to buy Pfizer is its robust clinical pipeline and aggressive merger and acquisition strategy. The company is pursuing novel therapies for obesity, a major health problem that affects millions of people worldwide. It is also expected to report top-line results from its gene therapy program (fordadistrogene movaparvovec) for Duchenne muscular dystrophy, a rare and fatal genetic disorder, later this year. These high-value product candidates could generate significant revenue for Pfizer in the future.
But there is one reason to avoid the stock: Pfizer's growth strategy is not without risks. The company has spent billions of dollars on acquiring other biotechs -- such as Arena Pharmaceuticals, Seagen, and Global Blood Therapeutics, among others -- but it is not clear whether these deals will pay off in the long run. Some of these recent portfolio additions face intense competition from therapies that may turn out to be markedly superior in terms of safety and/or efficacy. And if this scenario plays out, the drugmaker might struggle to simply recoup its investment in these pricey assets.
Verdict
Pfizer is a quality company with a lot of positives, but it is also experiencing portfolio churn that poses unique risks for shareholders. So if you are looking for a stable dividend stock with a high yield and modest growth potential, you might want to consider buying Pfizer in 2024.
However, if you are looking for a stock capable of consistently beating the broader market, you might want to look elsewhere. After all, Pfizer's top line is only forecast to rise by 2.7% this year, which probably won't convince Wall Street that it deserves a premium valuation.
