Billionaire Ken Fisher Thinks Pfizer Is Right For You

Billionaire Ken Fisher isn’t only the head of Fisher Asset Management, but also a long-running Forbes columnist whose picks published in that magazine have tended to outperform the market on average. The December 2012 issue of Forbes collects stock picks from a number of market players, and Fisher’s contribution to the special edition includes a recommendation for investors to be long Pfizer Inc. (NYSE:PFE). For anyone who follows Fisher Asset Management, this pick isn’t much of a surprise: the fund increased its holdings of Pfizer by 45% during the third quarter to a total of 32 million shares, and as of the end of September it was the largest position by market value in Fisher’s 13F portfolio. Find more of billionaire Ken Fisher’s favorite stocks.

Ken Fisher FISHER ASSET MANAGEMENT

Fisher made three arguments for Pfizer Inc.: its branded drug portfolio, growth opportunities, and a low valuation. At 19 times trailing earnings, the valuation based on the current state of Pfizer’s business actually doesn’t look that cheap to us. It certainly has a lot of good brand names under its roof, including Celebrex, Lipitor, and (of course) Viagra, so that is something of a positive, but the primary purpose of branded drugs is to drive high margins and that’s mostly accounted for in earnings multiples. Should Pfizer get some premium based on its brands? Yes, but at a trailing P/E of 19 we’d have to see good growth prospects.

That’s where the challenge is. In the third quarter of 2012, Pfizer Inc. reported a 16% decrease in revenue compared to the same period a year ago, and with similar margins earnings declined about as much. A reduction in share count helped limit the drop in earnings per share, and net income had been increasing in the first half of the year (though that came off of lower revenues), so Pfizer actually earned a penny more per share in the first three quarters of 2012 versus the first three quarters of 2011. Still, that’s very little growth. Wall Street analysts expect much better numbers in 2013, and so the forward P/E is only 11, but we’re skeptical that Pfizer can improve that much. We would note a case for the stock that Fisher ignored: with a beta of 0.7 and a 3.6% dividend yield at current prices, it could be a good defensive stock (as many other megacap pharmaceutical companies would be).

Cliff Asness’s AQR Capital Management also liked Pfizer during the third quarter, as that fund increased its own stake by 37% to 7.9 million shares (see more of Cliff Asness’s stock picks). Healthcare-focused Orbimed Advisors had Pfizer as its largest stock holding at the end of September, though it had sold shares during the quarter (check out more moves in the healthcare sector at Orbimed Advisors).

Pfizer’s peers include Merck & Co., Inc. (NYSE:MRK), Novartis AG (NYSE:NVS), Sanofi SA (NYSE:SNY), and Abbott Laboratories (NYSE:ABT). Sanofi is the only one of these stocks with a beta of 1 or greater, and all pay dividend yields of at least 3%. So Pfizer doesn’t seem to have any particular advantage for defensive-minded investors. In terms of P/E multiples, these four large drug manufacturers trade at 15 to 20 times trailing earnings, placing Pfizer towards the higher end of the range implied by its peers but not substantially overpriced. However, the numbers for the third quarter are in at each of these companies and with the exception of Sanofi earnings appear more stable at these peers.

Given this analysis it seems to us that Pfizer’s business prospects are at best even with those of its peers, with the stock trading towards the upper end of the range of trailing P/E multiples for megacaps in its industry. As a result we’re not as excited as Fisher is about Pfizer, and it’s possible that another large pharmaceutical company such as Novartis or Abbott Labs might be a better buy.

blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

10 Top Reasons For Getting Fired

The 3 Best States to Start an LLC

10 Jobs That Allow You to Travel

7 High-Paying Jobs You Can Do From Home

12 Best Cities to Shop in USA

10 Best States To Practice Medicine

The 10 Best States to Have a Business

The 12 Most Expensive Apple (AAPL) Apps in the Market

The 10 Richest Billionaires in the World

10 Biggest Kickstarter Failures

The 10 Best Places to Work At

The Top 10 of Google Inc (GOOGL)’s Most Expensive Acquisitions

13 Best Cities to Visit in South America

10 Most Expensive Works of Art of All Time

The 10 Richest Banks in the World

The 10 Best-Paying Jobs in America (2014)

7 Most Expensive Foods in the World

The World’s Top 10 Earning Authors

Five Wicked and Very Expensive Items (and Other “Stuff”) Sold on eBay

10 Biggest Celebrity Bankruptcies

The Top 10 Highest Paid CEOs in 2014

The 10 Most Expensive Real Estate Cities in America

10 Most Expensive States To Live In America

The 10 Best Airlines in the World

The 10 Best-Selling Cars in 2014

The 10 Best Industries to Invest In

The 10 Most Expensive States to Own a Car In

Top 10 Business Schools in US: 2014 Rankings

Top 20 Female Billionaires in 2014

6 Movies That You Should Watch to Better Understand The Cold War

Top 15 Best Paying Jobs for Women in 2014

Top 6 Things Rich People Do Differently Every Day

5 Retirement Mistakes To Avoid (and Einstein’s Famous Quote)

11 Smartest People in the World

6 Films About the Financial World You Need To Watch (While “The Wolf” is Not Around)

Warren Buffett and Billionaires Are Crazy About These 7 Stocks

The Top 10 States With Fastest Internet Speeds

10 Best Places to Visit in USA in August

Top 10 Cities to Visit Before You Die

Top 10 Genetically Modified Food In the US

15 Highest Grossing Movies Opening Weekend

5 Best Poker Books For Beginners

10 Strategies Hedge Funds Use to Make Huge Returns

Top 10 Fast Food Franchises to Buy

10 Best Places to Visit in Canada

Best Summer Jobs for Teachers

10 Youngest Hedge Fund Billionaires

Top 10 One Hit Wonders of the 90s

Fastest Growing Cities In America

Top 10 U.S. Cities for Freelancers

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!