What Ails Pfizer: Part Two

Click here for part one

Pfizer pays 72 cents a year in dividends, which leaves them with nearly $1.50 a share (or $12 billion) for other uses. Currently, they are paying down debt from their Wyeth acquisition but soon that cash will become available for other uses. I believe that they will use a large portion of that cash to buy back stock and at that point the shares will have no choice but to rise.

The biggest qualm I have with the stock is that it is a top hedge fund holding and almost every article I read about the stock is positive. The contrarian in me cringes when I see that. I sold out of the stock in early January for that reason. But a nearly 15% decline since the mid January highs makes me believe that the stock is becoming less loved. If Pfizer does a large buyback, like I believe they eventually will, then sentiment will not matter.

Pfizer is getting hit today because a drug in their pipeline had bad results. While this is genuinely bad news Pfizer's stock price is not placing any value on Pfizer's pipeline anyway. There are many more drugs in the pipeline and their will be more failures and some successes.

I would be willing to get more aggressive once Pfizer starts buying back shares but at these prices I am very comfortable holding a position.

1 comment:

Anonymous said...

Long CNLG @ 1.76