3 reasons why Pfizer (NYSE:PFE) might be a great buy

Pfizer stock has struggled this year, while other pharmaceutical companies have done well. Should our author be looking at buying shares in Pfizer?

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Key Points

  • Pfizer stock is down since the start of the year, but the underlying business looks to be in good shape
  • The company has been reinvesting the money made from its COVID-19 vaccines and currently trades at a relatively low P/E ratio
  • I think that Pfizer stock could be a great investment for my portfolio at current levels

Shares in Pfizer (NYSE:PFE) are down this year. The stock currently trades around 10% lower than it did at the beginning of January.

I find the decline surprising. I don’t have specialist pharmaceutical knowledge – and that brings a degree of risk to an investment in Pfizer stock – but I can’t see that anything has been going significantly wrong with the business.

On the contrary, Pfizer seems to me to be going from strength to strength. Here are three reasons why I think that Pfizer stock might might be a great buy for my portfolio.

Growth

Pfizer has been working hard to grow its drug portfolio lately. Specifically, it’s been using the money it generated from its COVID-19 vaccine to make acquisitions.

The details of Pfizer’s acquisitions might be difficult for non-specialists like me to evaluate. But the important thing, to my mind, is that the company is investing in growth for the future.

Pfizer’s COVID-19 success also seems to be ongoing. Recent approval of its antiviral pill and the use of its vaccines in boosters for under-11s in the US looks set to generate significant cash for the business going forward.

Accordingly, the first reason I think Pfizer looks like a great investment opportunity for me is its ability to generate cash in the future.

Low P/E ratio

Pfizer stock currently trades at a price-to-earnings (P/E) multiple of just over 11. That’s significantly lower than the S&P 500 average, which is around 18.

Normally, I wouldn’t over-emphasise the importance of a low P/E ratio. But I think it might be significant in the current climate.

Rising interest rates have been exerting pressure on share prices this year. As interest rates increase, stocks that trade at higher P/E multiples start to look expensive.

By contrast, stocks with lower P/E ratios are shielded from this effect somewhat. The fact that Pfizer’s shares trade at a low P/E ratio is therefore my second reason for thinking that the stock could be a great investment for me.

Investment returns

In my view, Pfizer has a good record both as a company and as a stock. Over the last five years, Pfizer stock has been a solid investment.

The share price has increased by 65.8% since June 2017 and Pfizer has paid out $9.64 per share in dividends to shareholders. In addition, Pfizer shareholders received stock in Viatris, worth around $1 per share as a result of Pfizer disposing of its generic drug unit.

Past performance are not always indicative of future returns and there’s a risk that Pfizer might struggle to maintain its momentum. But I think that Pfizer’s historic success is indicative of a strong business and a competent management team that will set the company in good stead for the future.

Conclusion: a stock to buy?

I’d be happy buying shares in Pfizer at today’s prices for my portfolio. While pharmaceutical companies are complicated, I think there are reasons to think that the stock could perform well over time.

Pfizer is making investments in its drug portfolio, trading at a reasonable price, and looks like a strong operation with a capable management team. That’s enough for me.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be considered so you should consider taking independent financial advice.

Stephen Wright has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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