Keep winners, ditch losers. That's usually not bad advice for investors. There's one big problem, though: Sometimes long-term winners temporarily look like losers.
Even the biggest and the best companies can undergo periods when things just don't go their way. One especially comes to mind for me. Here's an S&P 500 dividend stock down 56% to buy and hold forever.
The main culprit behind the Pfizzle
I won't prolong the suspense. The stock I'm talking about is Pfizer (PFE +0.09%). And it has admittedly been a loser for investors in recent years. Since late 2021, shares of the big drugmaker have plunged close to 56%.
NYSE: PFE
Key Data Points
Why has Pfizer stock fizzled? Blame it on COVID. To be more specific, blame it on declining demand for the company's COVID products.
Just a few years ago, Pfizer was flying high. Its Comirnaty coronavirus vaccine was making money hand over fist. So was the company's oral COVID medicine Paxlovid.
Times have changed. The pandemic is over. The U.S. government isn't directly buying coronavirus vaccines and antiviral therapies anymore. Many people don't have a sense of urgency in being vaccinated.
Pfizer's fourth-quarter results tell the company's sad tale. Sales for Comirnaty fell 54% year over year. Paxlovid's revenue was a negative $3.1 billion due to a reversal related to U.S. government inventory returns. These declines caused Pfizer's overall revenue to sink 42%.
Why buying Pfizer stock now makes sense
There's even more bad news for Pfizer. The company faces patent expirations for top-selling drugs including Eliquis, Ibrance, and Vyndaqel over the next few years. It expects loss of patent exclusivity to whack around $17 billion from its annual revenue by 2030.
So why does buying Pfizer stock right now make any sense? I'll give you four great reasons.
First, the launches of new products and new indications for existing products should generate roughly $20 billion in additional annual revenue by 2030 -- excluding COVID products altogether. That's more than enough to offset the impact of Pfizer's looming patent cliff. Importantly, this revenue total is for products that the company has either already launched or will launch in the first half of 2024. We're not talking about a pie-in-the-sky number.
Second, Pfizer expects to add another $25 billion in annual revenue by 2030 from business development deals. Again, this seems to be a realistic estimate based on the acquisitions the company has already made (notably including Seagen).
Third, the market seems to be valuing Pfizer as if it doesn't have any growth drivers. Shares currently trade at a forward earnings multiple of less than 12. By my calculations, Pfizer is cheaper than nearly all of its big pharma peers even if we assume it won't make a penny from its coronavirus products. (It will.)
Fourth, Pfizer pays investors handsomely to wait until the market regains its senses about the stock. The company's dividend yield tops 6.3%. It doesn't have to deliver much share price appreciation to achieve double-digit total returns.
Hold forever?
Hopefully, I've made a compelling case for buying Pfizer. But is it really a stock to hold forever?
Pfizer has been in business since 1849. The company has successfully navigated depressions, recessions, political crises, wars, and major changes in the biopharmaceutical industry. Most importantly, in my view, it has demonstrated that it can continue to innovate and make deals that drive growth.
As we've already seen, the big drugmaker also offers a dividend that many income investors would drool over. I expect Pfizer's dividends to keep flowing and growing for decades to come. Yes, I'd argue that this stock is one to buy and hold forever -- especially for income investors.
