Subject: Re: Pfizer / pounding the table.
Hello kelbon, thank you for your reply.
Unfortunately, I don't agree with the ideas you have presented, for reasons I'll explain.
I'll also extend a simple opportunity for you to easily 'prove my thesis wrong', at the end of this post.
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> The explanation for Pfizer's sinking stock price seems to be fairly clear
If that were so, then all the other times it dropped steadily down would likely make sense too, on the same basis.
However, they do not match that thesis - Pfizer made record earnings while it's price dropped in an identical way previously - so I would suggest that simple narratives are not usually correct ones.
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Here's an alternative simple narrative. Pfizer's sinking stock price recently is because the market has been 'risk on' since SP3600ish, and Pfizer is a defensive. This narrative is well-supported by the fact that all the other big pharma companies have seen a decline in prices lately, even though they don't have a corresponding risk of 'covid drug earnings cliff edge'.
https://finviz.com/map.ashx?t=...
For example, look at the "Pharma" section in the middle of this 3-month price change heatmap. JNJ -12%, LLY -12%, PFE -16%, BMY -12%, AMGN -17%, BIIB -11%. Even considering other categories of traditional defensive stocks we see the same sort of thing. CVX -12%, COP -16%, EOG -19%, OXY -16%. It's not a universal truth; XOM has held up, MRK and ABBV have held up. Consumer defensive (PG, KO, CL) is only -5%. But hopefully you see my point.
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Or here's another simple narrative. Pfizer's price has spiked with every major new covid wave, and dropped back again after covid falls out of the news. This has happened on and off fairly reliably for the last 18 months. The hype/news cycle appears to be drive many other companies (notably Nvidia on a PER around 100x at present), and it has driven Pfizer/Biontech/Moderna/Novavax's share price to record highs in the past few years already, and currently all are near the low end of their 52 week range, so it seems fair to assume Pfizer is also part of the covid hype/non-hype cycle in the news.
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Here's another simple narrative. Momentum traders tend to move out of stocks that are going down, because they're going down. It has always been so for probably hundreds of years. This causes prices to steadily slide up or down over time. It goes up because it went up, it goes down because it went down. Just now, Pfizer is a momentum trade in the downwards direction. Later it will be a momentum trade in the upwards direction.
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How can we tell which is 'the right one'? I don't think any of them are 'the right one'. It's a little bit of all of it probably. Earnings, hype, momentum, sector rotation.
Insisting on a single simple explanation may be emotionally appealing but it doesn't feel wise to me.
Anyway let's take a quick look at the 'simple narrative' you presented a bit closer, and see how it holds up to historical fact:
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> over the last 30 days, earnings projections have been significantly reduced by a chorus of analyst
"Analysts" have (slowly) updated their projections into line with Pfizer's own formally forecasted drop in revenue and earnings for 2023, which Pfizer announced *4 weeks ago*.
If 'we have realised 2022 earnings are to go down!' was the sole, simple reason for the stock price being down today, then the price should have dumped very hard 4 weeks ago to the current level when Pfizer told everyone their guidance was to expect far lower earnings.
It should have happened then when the information became available from the horse's mouth, rather than gradually over the following 4 weeks when someone random, sluggish and anonymous 'analysts' finally got around to reading Pfizer's report and updating their 'analysis' to reflect what Pfizer had told everyone already in the announcement 4 weeks ago.
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> What is more, earnings growth over the next five years is now projected to be anemic, at best.
Firstly, who needs earnings growth when you're on PER 10-11x?
That sort of PER year after year, plus inflation plus moat plus monopoly, is a gift directly from god.
Secondly, how accurate were 'Pfizer analysts' when they made 5y earning growth estimates in 2018? (answer: a million miles away! Not a single one saw 2021-2022 earnings coming ahead.)
Why listen to people who all got it totally wrong the last time?
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Frankly, I don't believe **anyone** can make a meaningful 1-year estimate of Pfizer's profitability today - including Pfizer themselves.
The primary determining factor of Pfizer's profitability being 'fine' or 'amazing', this year and next, depends on mutations in covid - a) their lethality and transmission characteristics b) their resistance to existing vaccines, to natural immunity, and to paxlovid.
**The future of covid, even 3 months hence, is presently completely unforeseeable even by the world's top experts in viral mutation.**
Depending on the random mutations in covid - Pfizer may have earnings somewhere in the range of 'roughly 8x' - if we get a bad variant out of nowhere, as we did with Alpha, Delta and Omicron - and a huge stockpile of paxlovid and fresh MRNA vaccines are urgently required globally.
Or, poorer earnings, perhaps around 13x, if covid is magically cured and Pfizer has to rely more on all the other medicines it sells (e.g. trend earnings pre-covid, but boosted up by the lack of debt payments).
I'm pulling 8x and 13x out of the air as examples of the range we're talking about.
You can estimate e.g. 13x formally by looking at trend earnings pre-covid (say 2019) and adjusting upwards by inflation, and subtracting out debt/interest payments in the business statements since the company is now zero net debt thanks to the covid windfalls, and adding in 2 fudge factors - expiry of older drugs and some level of paxlovid/vaccine sales regardless of what happens.
Likewise, for the 8x figure I'm simply taking 2022 earnings and assuming they repeat if we get the Omicron/Delta type scenario and a ton of vaccine and paxlovid is needed.
However, 8x-13x is certainly not the entire range of possibility.
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It's also possible a 'nightmare variant' might come along, with e.g. current-day 'off the charts' transmissibility, current-day 'highly resistant' immune escape, but combined with e.g. SARS-COV-1's (2002-2004) high lethality - it had a proven 9% mortality rate.
SARS-COV-1 is a hard proof that this very specific family of coronavirii we are dealing with as covid, can sometimes have super high lethality rates in humans unexpectedly, even in very advanced healthcare systems like Hong Kong's, depending on how mutations interact with our organs and immune systems.
So in addition to the likely 8-13x range on earnings, there's a bit of bonus 'lottery ticket' optionality, but let us hope humanity doesn't win that lottery.
https://en.wikipedia.org/wiki/...
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Anyway. For the sake of argument let's suppose we take a middle of the road figure.
You've mentioned $4/year for the next 3 years. Cool, let's go with it, for talking sake.
That would put Pfizer on a current PER of almost exactly 10x (at today's price of $40.80), for the next 3 years, with no net debt, and a global, hard-to-breach monopoly moat/
And with a product that is so 'non-discretionary' that you literally risk dying if someone doesn't buy it for you.
Total addressable market: every human on the planet, at a fair price anyone can afford.
Is this not a table pounding bargain?
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Perhaps I am simply ignorant of the options out there.
Do you know of better alternatives that would be more table-pounding than this, today?
I would like to ask you to name 5 other companies in the top 100 of the SP500, which have an amazing Pfizer-like combination of both value and quality and highly-defended monopoly moats, as Pfizer has right now at the current price.
Recap of what I'm looking for in these 5 candidates:
- Highly defended moat surrounding a global monopoly/duopoly on big money earners.
- - (By moat I mean limited competition and high barriers to new products e.g. the cost and difficulty of clinical trials + medical sales/logistics)
- Non-commodity product that is so essential you may literally die if you don't buy it.
- Credible expectation of around PER 10x continuing for years to come in a reasonable outlook.
- And a 4% yield **on top** while maintaining that PER 10x...
- Net cash / zero debt.
- Long established company, e.g. >20 year track record, preferably with a diverse product range to back up earnings (not a one-trick pony).
- Demonstrated ability to execute on R&D, validation, production, and sales/distribution at global scale at hitherto-unforeseen speed, in order to exploit global crises/opportunities.
- Low or zero exposure to present risks from China, Russia, energy crisis, inflation.
- Low to zero chance of company falling apart within 3 years.
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It is my sincere hope you can show me 5 such companies, because, by god, I would love to invest in all of them!
The closest example I can think of is perhaps: TSMC (big moat, excellent in execution, 12-13x PER, 2% dividend, semi-essential, but a large china risk).
If you do not think you can provide 5 similar alternatives from among the top 100 SP500 companies, will you agree that this could be a table-pounder, at least for the sort of person like myself who likes "Quality at a Value Price" types of company?
Thank you again for your reply.
lux