Motley Fool: Profit with Pfizer

Pfizer’s (NYSE: PFE) stock seems attractively priced, with a recent forward-looking price-to-earnings (P/E) ratio near 12 – well below the valuations of the S&P 500, the overall health care sector and the pharmaceuticals industry. Why so low? Well, its revenue and earnings are falling due to declining sales for its COVID-19 products.

Pfizer will soon face a significant patent cliff as well. Several of its top-selling products – including Eliquis, Ibrance, Vyndaqel, Xeljanz and Xtandi – will lose patent exclusivity over the next few years, which will mean competition from generic versions.

There’s more to the story, though. Pfizer projects that 2023 will be a tough year for COVID-19 vaccine Comirnaty, but it hopes for a big boost in 2025 from the launch of a combination COVID-influenza vaccine.

Sure, the loss of exclusivity for several key products will hurt. But Pfizer believes that its new product launches through the first half of 2024 will generate enough annual revenue by 2030 to more than offset all of those losses. The drugmaker also sees its business development deals adding $25 billion to annual revenue by 2030.

In the meantime, Pfizer offers its investors a robust dividend, recently yielding 4.2%. Pfizer appears to be a great bargain stock for long-term investors. (The Motley Fool owns shares of and has recommended Pfizer.)

Ask the Fool

Q. What are “target-date” funds, and should I invest in them? – F.F., Norwalk, Connecticut

A. Sometimes referred to as “lifecycle” funds, they’re designed to make investing for retirement easier. Conventional wisdom says you should hold mostly stocks when you’re young, shifting to bonds as you approach and enter retirement. That requires some attention and effort, so target-date funds do the work for you.

Many fund companies offer target-date funds, each focused on a certain year when its shareholders would be expected to retire, such as 2030, 2035 or 2040. Each fund will adjust its asset allocation over time accordingly, shedding stocks and adding bonds as the retirement year approaches. (Note that you can be more aggressive by choosing a fund year later than your expected retirement year, and vice versa.)

These funds can vary widely, though, so look into each candidate’s fees, holdings, asset mix and performance before investing in one. Keep your big picture in mind, too. If you invest, say, $20,000 in a target-date fund with an 80-20 stock-bond ratio, but you have another $100,000 invested in stocks, your overall portfolio will have far less than 20% of its value in bonds.

Learn more about retirement strategies and investments at Fool.com, and using our “Rule Your Retirement” service (Fool.com/services).

Q. A mutual fund I’m interested in is “closed to new investors.” Is that bad? – I.N., Abilene, Texas

A. It means you’re out of luck for now, but it’s generally a good thing.

When a fund grows very large, it can be hard for its managers to find enough good investments for their shareholders’ money. Resorting to less promising ones can hurt results, so funds occasionally restrict additional investments to keep growth in check.

My dumbest investment

The investment I’ve regretted most was made more than 20 years ago, when I bought into Boston Scientific for around $40 per share. I then watched it plummet.

Why did I hang on? I’m not sure, but doctors around me were buying shares like candy, so I followed their lead. I learned a useful lesson: Don’t follow well-meaning friends without doing your own research. When my brother-in-law saw me licking my wounds, he recommended I check out The Motley Fool. I bought a Motley Fool book, read it a few times and understood my folly.

I kept my shares just to remind myself of what can happen with uninformed investment decisions. Fast-forward about 20 years, to a phone call from my brother-in-law with news that Boston Scientific was rising! What? Yup – it was back in the $40 range. A different kind of long-term investing, and certainly not intentional!

I think I’ll just keep holding the shares so they can keep serving as a reminder to do my homework before investing. – S.L., online

The Fool responds: Boston Scientific shares were recently around $54 – but that’s after a 2-for-1 split back in 2003. So you should have twice as many shares as you originally bought, with a cost basis near $20. Don’t hang on to them just as a reminder, though, as you’ve learned your lesson. Only hold if you’re bullish on the company’s future.