Down 50% with a 6.5% yield, is this massive S&P 500 stock a screaming buy?

Our writer considers the prospects of a once-massive S&P 500 stock that’s fallen out of favour and now has a low price and attractive dividend yield.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

During the pandemic, it was one of the most well-known S&P 500 companies in the world. Famous for being the first to develop an FDA-approved Covid vaccine, Pfizer (NYSE: PFE) quickly became a household name.

Today, the pharma giant’s market-cap has collapsed over 50% from its Covid-era high of $333.8bn. Now at around $150bn, it no longer holds a place in the largest 100 companies in the world.

As the pandemic ended, the huge influx of revenue from vaccine sales tapered off. In the ensuing years, the share price fell to a 10-year low. But Pfizer is not just a vaccine company. It also develops treatments for a range of medical conditions such as cancer, sickle cell disease and arthritis.

Should you invest £1,000 in Franklin Templeton Icav - Franklin Ftse India Ucits Etf right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Franklin Templeton Icav - Franklin Ftse India Ucits Etf made the list?

See the 6 stocks

So is the falling share price indicative of wider issues or simply an expected correction after Covid?

Created with Highcharts 11.4.3Pfizer PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

Business as usual

Pfizer doesn’t appear to be struggling in the face of falling revenues. In 2022, it acquired the immuno-inflammatory company Arena Pharmaceuticals and the following year, Seagen, an oncology specialist.

But vaccines remain one of its biggest focus areas. Its success during Covid means it’s in good stead to be the company of choice for vaccine development. It currently has a strong pipeline for the development of new mRNA-based flu and RSV vaccines.

Valuation

The falling price means the stock is now trading at 67% below fair value based on future cash flow estimates. Plus, earnings are forecast to grow at a rate of 15.7% a year. 

That gives the stock an attractive forward price-to-earnings (P/E) ratio of 13. As such, analysts expect price growth of 25% on average in the coming 12 months.

Challenges

Like many pharmaceutical companies, Pfizer faces the imminent and terrifying patent cliff. As the expiration dates of its major drug patents draw near, it faces the risk of competition from generics and biosimilars.

Not only does it face competition from generic developers but also major pharmaceutical players like Merck, Johnson & Johnson and Novartis. It can’t rely on another pandemic to boost sales — if it hopes to remain relevant, it needs to outperform its competitors.

In the past, it suffered reputational damage from the high pricing of EpiPens and cancer drugs. With a recent uptick in debates around healthcare pricing in the US, a forced reevaluation of its pricing model could limit revenues.

My verdict

Pfizer remains a strong business that seems to be performing well and expanding effectively. The 6.5% yield makes the current low price particularly attractive. Grabbing some cheap shares now could set an investor up for lucrative returns over the coming years.

Without a doubt, there are challenges, particularly those related to the wider healthcare controversy in the US. However, the company’s worst losses appear to be over with the stock trading up during Q3 this year. If the economy enjoys a boost in 2025 under the new Trump administration, it stands to benefit. 

With Christmas coming, I don’t have spare cash to put into new stocks right now. However, for investors looking to diversify into US pharmaceuticals, I think Pfizer is worth considering.

Pound coins for sale — 31 pence?

This seems ridiculous, but we almost never see shares looking this cheap. Yet this Share Advisor pick has a price/book ratio of 0.31. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 31p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 10%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

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 assessed. Consider taking independent financial advice.

Mark Hartley 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.

More on Investing Articles

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Down 25% since January, this resilient dividend stock’s catching my eye

Maintaining the UK’s rail, water, and energy infrastructure isn’t the most exciting business. But it has made this a solid…

Read more »

Investing Articles

Prediction: Unilever to outperform the FTSE 100 over the next 12 months

The FTSE 100 has made a strong start to 2025, but Stephen Wright thinks a popular dividend stock could be…

Read more »

Investing Articles

I just bought this legendary S&P 500 tech stock for my ISA, 27% off its highs

This S&P 500 stock has tanked over the last month and Edward Sheldon has snapped it up for his portfolio…

Read more »

Young black man looking at phone while on the London Overground
Investing Articles

2 beaten-down stocks to consider for an ISA after the massive market sell-off!

The stock market has had a sudden meltdown! Yet our writer thinks these two growth stocks look attractive candidates for…

Read more »

British Pennies on a Pound Note
Investing Articles

I asked ChatGPT what the best UK penny stock was. This is what it said…

Can AI find winning penny stock investments? Zaven Boyrazian puts ChatGPT to the test and discovers a potentially interesting opportunity.

Read more »

Investing Articles

These FTSE 100 stocks could be the winners from Trump’s tariffs!

President Trump’s unpopular tariffs caused mayhem on the world’s stock markets this week. But some FTSE 100 stocks bucked this…

Read more »

Investing Articles

Are these 3 sold-off UK shares secretly screaming buys?

Despite the FTSE 100 rising, there are still plenty of struggling UK shares. But are these three sold-off stocks potential…

Read more »

Investing Articles

Is the US stock market set to crash in April?

Panic about a looming stock market crash is spreading, but what could be the tipping point? And what can investors…

Read more »