Ten years ago many of the the financial pundits were glowing about the future prospects of the world's largest drug maker. 

The world's population was getting older and age demographics suggested that Pfizer was the one blue chip stock that an investor had to own for growth in the next decade or more.

Unfortunately, for the buy and hold investor, an investment in Pfizer in the year 2000 has since been a financial disaster. The stock has experienced years of declining sales and earnings, in a decade-long failure to produce big drugs. This lack of new drug discovery occurred despite huge, industry leading, annual research budgets. 

The stock price was nearly 50 dollars for each share in the year 2000 but it sells for less than 18 for a share of stock held today. The problem with investing in Pfizer is future growth. The stock faces an earnings challenge in the next few years as Lipitor, the world's largest selling cholesterol lowering drug (11.4 billion) comes off patent protection in 2011.

Pfizer's strategy was to buy drug maker Wyeth for 68 billion dollars last year to offset the loss of Lipitor revenue from generic competition. Pfizers recent merger gave the firm access to a compelling new pipeline of Wyeth drugs. In addition, the company had projected 4 billion in cost synergies and another 3 billion in savings for the combined firm.

However, in the last few months Pfizer has lowered its future earnings guidance projections and backed off some of the projected savings from the merger.

The result is a former blue chip stock that is unloved by Wall Street and languishes in price.  However, eWorldvu believes that the worst is over for the firm and that now is the time to buy and hold the world's largest drug maker for extensive long term capital gains.

Just as analysts were wrong a decade ago when recommending the stock for investment when its price was 50, they are equally wrong for ignoring the company's compelling potential today.

Here is the bull case for Pfizer in the years ahead:

-The company has about 15 billion dollars on its balance sheet even after it pays off all of its debt. Pfizer pays a generous dividend of 4.1%. There is cash for more future growth acquisitions if the right opportunity arises. The dividend is very appealing, has room to rise and pays an investor to wait.

- The earnings projections of the company indicate around $2.00 in earnings in the next few years. At its current price, the price to earnings ratio is only about 8. Any positive news will move the stock price forward since it appears undervalued on concerns over future growth. With the worst case already priced into the stock, downside risk is limited.

- Pfizer's experimental drugs include treatments for Alzheimer's disease, cancer, pain and diabetes. Six vaccines and 27 biotech drugs including complex inject able proteins that target other proteins linked to diseases are being tested. That's up from one vaccine and 16 biologics before the Wyeth merger.

- Pfizer's has pushed into China and other emerging markets with its branded and generic drugs. The firm is appealing for exposure to developing economies. Many people in emerging markets trust the Pfizer brand name.

- The United States Health care Reform legislation has been an overhang for the last year on pharmaceutical stocks and the conclusion of the process could act as a positive catalyst for Pfizer shares in the next several weeks. 

- Pfizer has sufficient cash flow to reduce debt, buy back shares, make acquisitions, and to raise its dividend.

- Success in the next 18 months in the existing drug pipeline could add to future earnings prospects and act as a positive catalyst for the shares.

We have noticed that the smart money has recently been buying Pfizer shares for the long term. In fact, 45 hedge funds that include successful money managers like John Paulson, Christopher Shumway, David Einhorn and Michael Karsch owned the stock at the end of the last quarter. 

eworldvu is buying 300 shares under the price of 18 on Monday March 8, 2010. Patience will be required but the stock could double within 3 years as the Wyeth drug pipeline begins to kick in. A greater than 4% stock dividend pays us to wait. 

Stock price risks include U.S. Health Care Legislation surprises,problems in emerging markets, and major drug failures in the existing pipeline.

(As always do your own due diligence prior to making any investment. eWorldvu members have long equity positions in Pfizer)

http://www.eworldvu.com

Update on Monday, March 8, 2010 at 10:35AM by Jim Smith

300 Shares of Pfizer bought at open at 17.59