Buy drugs at a discount

Pfizer (PFE) is my S&P 100 pick of the day.  PFE is a research-based, global pharmaceutical company that discovers and develops innovative, value-added products that improve the quality of life of people around the world and help them enjoy longer, healthier, and more productive lives. Pfizer has three business segments: health care, animal health and consumer health care. Its products are available in numerous countries.

You can't turn on TV without seeing Viagra and Lipitor commercials, two of their most recognized brands.  Although the patent for Lipitor runs out next year, the acquisition of Wyeth has brought in Enbrel and Zosyn to take it's place so the sales and earnings streams seem assured.  The 4.50% dividend isn't so bad either.

Right now the stock has upward price momentum and hit 9 new highs in the last 20 session for a 3.57% price increase,  Barchart has a 100% technical buy signal and the stock trades around 17.71 which is above it's 50 day moving average of 16.72.  The Relative Strength Index is 64.10% and rising.

Wall Street brokerages like this stock and have 17 buy and 6 hold reports published.  When you look at their reports it seems strange because although they expect sales to increase this year by 35.80% they are not forecasting great earnings forecasts.  They estimate an EPS increase of only 3.20% next year and a 5 year EPS annual growth rate of only 1.40%.  A closer look at the reports show that this stock normally has a P/E ratio of 15 to 16 but at today's price is trading around a 14 P/E ratio.  If normal ratios are achieved that could be a gain of 10 to 15%.

The general public is very high on the drug stocks and the CAPS members on Motley Fool vote 5,447 to 584 that the stock will beat the market with the All Stars voting 1,500 to 86 for the same result.  Wall Street columnists have written positive articles 31 to 2.

Points to consider:

• The 100% Barchart technical buy signal coupled with the 64.10% and rising Relative Strength Index show the stock is experiencing upward price trend
• Wall Street brokerages have buy recommendation published for their broker to push to clients.
• A wide and positive general investor following
• A 4.50% dividend and a discounted P/E ratio make it attractive in the short term

Jim Van Meerten is an advisor to Marketocracy Capital Management who uses his model portfolios not only to manage their mutual funds but also their clients Separately Managed Accounts. You can read his blogs about those model portfolios and investing here and on Barchart Portfolio Blogs. Please leave a comment below or email JimVanMeerten@gmail.com.


Disclosure: Jim Van Meerten through Marketocracy Capital Management has an interest in the stocks mentioned in this blog.