Thursday, January 22, 2009
Last Sunday night, I heard singing coming from the upstairs bedroom. My nine-year-old son, Grant, was having a sleepover with two of his best friends. All three of them would sing a little, then laugh a lot, then sing a little again, and laugh a lot again.
I couldn't quite make out the song, so I went upstairs to hear a bit better.
"Viva... Viva... Viagra!" It was Pfizer's twisted melody of an old Elvis Presley song.
Why would three nine-year-old kids be singing about erectile dysfunction? Because they had seen the commercials during the NFL championship football games earlier in the day.
They could just as easily have been singing about beer, heavy-duty trucks, or nacho-flavored potato chips. But they keyed into Viagra.
"Because," as Grant explained, "it's a good song."
Hmmmm... But is it a good stock? It's been quite some time since I took a look at Pfizer (PFE), the pharmaceutical company that manufactures Viagra. And if an advertising campaign can get three nine-year-olds singing about the top-selling drug, maybe the stock is worth singing about, too.
Or maybe not.
Pfizer has been a dead stock for the past nine years, dropping from a high of $40 in 2000 to a low just above $14 last November. Since then, however, it has bounced back to $17.50. And unlike most other stocks in the S&P 500, it has held most of its post-November gains.
PFE trades at 11 times earnings, which isn't necessarily cheap. But get this: Those earnings actually grew 63% during the first nine months of 2008 compared to the same nine-month period in 2007.
The company pays a 7.4% dividend. And it holds nearly $4 in cash for every share.
Yes, its drug pipeline is drying up and several of its top-selling drugs are coming off patent in the next few years. So Pfizer is going to have to use some of its cash hoard to buy a few smaller companies and boost its product catalog.
Nonetheless, with a modest price/earnings ratio, a fat dividend, a high rate of earnings growth, and its recent outperformance of most of the S&P 500, shares of Pfizer just might make a decent long-term investment.
PFE is scheduled to announce earnings next Wednesday before the market opens. It's a little too risky to buy stocks just ahead of their earnings announcements. So I wouldn't pull the trigger yet.
But if the earnings are anything to sing about, then maybe the stock will be, too.
Best regards and good trading,
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