Shares of the big drugmaker Pfizer (NYSE: PFE) have plunged more than 50% since the high set in late 2022. Pfizer’s revenue and earnings are sinking like a brick; its once high-flying COVID-19 franchise has been largely grounded, and big hurdles lie ahead. But take a closer look.
Before the end of the decade, several of its top-selling products will lose exclusivity when their patents expire, but their sales won’t evaporate overnight.
And Pfizer has other irons in the fire. For instance, the company is developing a combination COVID/influenza vaccine. It has invested heavily in research and development and spent billions of dollars on business development deals.
And by 2030, Pfizer can more than offset its lost revenue from patent expiration with new product launches, new indications for existing products and new business development deals.
The company has already launched several new products that should help significantly, notably including multiple myeloma drug Elrexfio and respiratory syncytial virus (RSV) vaccine Abrysvo.
Business development deals have already bolstered its product lineup and pipeline, too. For example, Pfizer’s acquisition of Biohaven Pharmaceutical brought in up-and-coming migraine drugs Nurtec and Zavzpret.
Its recent purchase of Seagen added four approved cancer therapies and a promising pipeline.
Meanwhile, the stock’s value seems appealing, with a recent forward price-to-earnings (P/E) ratio of 12; its dividend recently yielded more than 6%. (The Motley Fool owns shares of and has recommended Pfizer.)
Ask the Fool
Q. Can you recommend any books about great investors? – T.T., Brookfield, Wisconsin
A. Try “Big Mistakes: The Best Investors and Their Worst Investments” by Michael Batnick (Bloomberg Press); “Value Investing: From Graham to Buffett and Beyond” by Bruce Greenwald, Judd Kahn, Erin Bellissimo, Mark A. Cooper and Tano Santos (Wiley); “The Value Investors: Lessons From the World’s Top Fund Managers” by Ronald W. Chan (Wiley); and “The Art of Value Investing: How the World’s Best Investors Beat the Market” by John Heins and Whitney Tilson (Wiley).
Q. How can my brokerage charge $0 for stock trades? Is something fishy going on? – S.B., Cedar Hills, Oregon
A. Nope. Many, if not most, trades are placed online these days, and they’re processed electronically, costing brokerages very little.
In any event, the trading commissions that many brokerages used to charge were far from their only source of income.
Like banks, brokerages generate income from “net interest” – the difference in the interest rate they pay customers for cash deposits and the interest rate they earn when they invest customers’ cash.
They also earn money when investors pay interest to borrow funds with which to buy stocks (“on margin”). Lots of brokerages have other revenue streams, such as from managing customers’ assets.
And they collect plenty in fees, such as for paper statements, or when customers buy or sell mutual funds.
Brokerages can also profit from “payment for order flow”: They send orders placed by customers to certain market-makers.
Those parties then collect part of “the spread” – the difference between a stock’s “bid” price (what an investor is willing to buy the stock for) and “ask” price (what a seller is willing to sell it for).
My Dumbest Investment
My most regrettable investing move? Well, having been in the insurance industry for 32 years, I was somewhat skeptical of insurance newcomer Lemonade.
Data processing and analytics are important, but every company uses them.
On the other hand, a good insurance company can grow quickly and profitably.
I bought into Lemonade at the wrong time and saw my shares fall by 70%. Ouch!
I should have trusted my instincts that Lemonade’s foray into auto insurance would be a tough road, given that the market is saturated. – I.O., online
The Fool responds: Lemonade is an odd name for a company, but perhaps fitting, as it has delivered both sweet and sour results for shareholders, depending on when they bought or sold their shares.
The stock has fallen sharply in recent years, but bulls still see a lot of potential for the digital insurer.
Known for using artificial intelligence (AI) to develop reportedly superior risk-pricing models, the company has been growing its customer base and revenue briskly, though it has been posting losses instead of gains for multiple years now.
As you note, the timing of your purchase was unfortunate, as the stock had risen dramatically due to many hopeful investors buying shares. Lemonade might turn out to be a fine investment from here on out, but it’s not without some risks. (The Motley Fool owns shares of and has recommended Lemonade.)