Pharmaceutical behemoth Pfizer (NYSE: PFE) has a lot to offer investors. For starters, it sports stellar free cash flow and a solid dividend that recently yielded 3.4 percent, with plenty of room to continue growing. (The company last increased its dividend payout by nearly 6 percent.)
Pfizer’s long-term outlook continues to improve, thanks to a rapidly growing oncology franchise. The company has also shown a penchant for producing outstanding returns on capital, even in the face of numerous headwinds, such as the drug pricing controversy in the United States and a slew of patent expirations.
Pfizer’s business model remains straightforward: It makes drugs, invests its profits into adding new ones to its lineup and rewards shareholders in the process. Pfizer generated more than $53 billion in revenue and more than $11 billion in profit in 2018 and has reinvested around 15 percent of its total revenue into research and development of new products.
CEO Albert Bourla has called the company’s pipeline “the best … in our history,” and the company cites 15 potential billion-dollar drugs that could win approval from the Food and Drug Administration within five years.
With an attractive forward-looking price-to-earnings, or P/E, ratio recently in the mid-teens, Pfizer is a promising candidate for the portfolios of long-term investors.
Ask the Fool
Q: How (and why) would one “ladder” investments in certificates of deposit (CDs)? – P.L., Dothan, Alabama
A: Laddering is a strategy you might use if interest rates are likely to rise over the coming years. It involves dividing an investment into installments with different maturity dates.
For example, if you wanted to invest $15,000, you might plunk $5,000 in one CD that matures in one year, spend another $5,000 on one that matures in two years and put a final $5,000 in one that matures in three years.
Laddering keeps you from being locked into a low rate for too long, as each year you can reinvest part of your money in a new security, ideally at a higher interest rate. It also keeps you from having to wait too long to get your hands on some of your cash.
Q: Can you explain what a “pro forma” financial statement is? – F.W., Brooklyn, New York
A: Instead of presenting a company’s financial performance or condition based solely on Generally Accepted Accounting Principles, or GAAP, a pro forma document presents a picture reflecting assumptions or hypothetical conditions of past or future events.
For example, imagine that Nike merged with Starbucks mid-year. When the combined company reported its finances at the end of the fiscal year, it might include a pro forma statement reflecting operations over the year as if it had been combined all year long. Nike or Starbucks might also prepare pro forma statements when proposing the merger, to show what their combined performance might look like.
Pro forma statements have a place, but sometimes they can be taken too far – say, if a company is showing positive earnings results that it would have had if various bad things hadn’t happened.
My dumbest Iinvestment
One of my dumbest investments was selling my shares of Netflix after holding them for about three years. The shares had started to plummet, so I sold, but then they shot right back up.
I did reap a big profit – roughly quadrupling my investment – but if I’d held on, I could have made about 25 times my initial investment. Lesson learned: Have patience. – Mark M., Radford, Virginia
The Fool responds: Patience is indeed critical, as great stocks tend to perform well for many years. Netflix stock debuted on the market in 2002, via an initial public offering, or IPO, with shares priced at $15 each. The shares split 2-for-1 in 2004 and 7-for-1 in 2015.
If you’d bought 100 shares in 2002 (for $1,500), they would have become 200 shares in 2004 and then 1,400 shares in 2015. (Note, though, that when shares are split, the stock’s price is reduced proportionately; a split doesn’t multiply the value of your holding.) With shares recently trading around $360 apiece, 1,400 shares would be worth about half a million dollars!
It’s easy to kick yourself now, but remember that the company’s future did seem questionable at various points in the past, such as when it planned to spin off its DVD business as “Qwikster.” Investors need to keep up with their holdings’ progress and hang on to shares only as long as they have faith in them.
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