2010 April » Financial Uproar

Pfizer: Cure For What Ails Your Portfolio?

Apr 302010

Recently I was reading one of my favorite value investing blogs, Barel Karsan, when I noticed he had a piece on Pfizer. He noticed that Pfizer had a very large number of new drugs that were close to coming to market and had a quote from the CEO touting his excitement about the pipeline. With Pfizer’s huge acquisition of Wyeth during 2009, is this the time to buy the beaten up drug company?

Why Is It Cheap?

There’s all sorts of things that have pulled Pfizer’s stock price down. They took on a huge debt load and cut the dividend when they acquired Wyeth. Their best selling drug, Lipitor, came off patent protection last year. The passing of the health care bill also created uncertainty about Pfizer’s pricing power. It hasn’t been a nice couple of years for Pfizer.

Industry Outlook

As mentioned, the health care bill creates a huge question mark for this whole industry, which is why the entire sector has sold off recently. One positive note is that Americans aren’t getting less sick, so demand isn’t likely to dampen anytime soon for prescription drugs in general. I’d rank the short term outlook not so good but the long term outlook solid.

Dividend

Here’s where the bad news comes back. The stock has a current yield of 4.35%, paying out 18 cents a quarter or 72 cents per year. While this isn’t a bad yield, it pales in comparison to the mouth watering $1.28 the company paid out before the Wyeth acquisition.

Balance Sheet

The company has a book value of $11.15 per share, however much of that is made up of goodwill and intangibles. Compared to other pharmaceutical companies, Pfizer trades at a discount. Their price/book is 1.48 times, while the average pharmaceutical stock trades at over 2.6 times book value.

Here’s where it gets scary. To finance the Wyeth purchase, Pfizer took on a lot of debt. A lot. They went from just a hair less than 8 billion owning to over 43 billion.

Earnings

2006-$1.52

2007-$1.18

2008-$1.19

2009-$1.22

*Note: These earnings exclude any extraordinary items, something Pfizer seems to have every year.

Earnings are pretty flat. Because of the Wyeth acquisition, analysts are expecting earnings of $2.20 for 2010, meaning the company is trading at less than 8(!) times next year’s earnings.

Price Appreciation

The stock price is been in a downward spiral for most of the past 10 years. During the early part of this decade the stock price spend considerable time above $30. The downside risk seems small, as the stock trades for such a cheap valuation. A target price in the low 30s wouldn’t be an unreasonable target for a long term investor.

Summary

Guys, I kinda like Pfizer at these levels. Basically the only negative thing about the company at this point is the large level of debt. A look at the annual report confirms what Barel Karsan said about the pipeline looking good. The acquisition of the more consumer based line of products from Wyeth is a nice fit, giving very predictable sales numbers. If they can manage the acquisition smoothly, there’s even potential for the dividend to go up. For a long term investor, a double is a very realistic goal.

Disclosure: I do not own shares in Pfizer at the time of this writing, however I will mention it on my twitter if I do end up buying some.

Middlemen

Big Picture Stuff 3 Responses »

Apr 292010

Yes, I realize Four Pillars just had a post also called Middlemen. I’m not stealing it, I promise.

Before I get into this post, I just want to say that I really don’t hate The Financial Blogger. He’s got some good stuff over there. I have his blog in my reader because for the most part, I enjoy reading what he has to say. He uses way, way too many winky faces for my liking, but we won’t hold that against him.

(Note, that last winky face was an ironic winky face)

Recently, Mike has been running a series of posts on selling his house himself. He’s had pretty good success at it too, selling it in less than 2 weeks, although he didn’t quite get as much for it as he hoped. He outlines his reasons for not hiring a real estate agent in this post. All of them further reinforce that someone with a reasonable amount of knowledge is more than capable of selling their own home.

The thing that interests me about the whole situation is what Mike does for a living. For those of you in the dark, Mike is a financial planner. What may strike you as ironic is that even though Mike is a middleman himself, he avoids real estate agents because he labels them as overpaid.

The irony is delightful. One could very easily make the argument that, for reasonably educated people, financial planners are simply overpriced unnecessary middlemen. Why should anyone pay a financial advisor, when the answer to just about any question they may have is just a Google search away?

That’s not really that hard of an question to answer. People use financial planners or real estate agents for lots of reasons. They may be too busy to give proper attention to their investments or selling their house. They may not think they have the expertise to do it. They may simply be trusting of an expert’s opinion. Heck, they may even be jaded do it yourselfers, bitter from a lack of success acting on their own. All of those are legitimate reasons to use any middleman.

This just doesn’t apply to middlemen. I’m told that changing my oil is a simple process. Yet I’m more than happy paying an expert to do it. It’s the same thing with cutting my hair (I could always give myself a “buzzcut”, like I used to have as a kid) or fixing my washing machine or repairing my computer.

I personally try to cut out middlemen as much as I can. I like the independence of doing things myself. That doesn’t mean, however, that all middlemen are overpaid. I just choose to avoid them.

If You Can’t Pay For It, Should You Get Married?

Big Picture Stuff 12 Responses »

Apr 282010

A few months ago, I got into an interesting discussion with some friends who are getting married. When we started discussing the financial arrangements, they revealed that their parents would be footing over 90% of the bill and all they would have to pay for is the honeymoon. Intrigued by that admission, I told them my theory behind paying for weddings.

If you’re a big enough grown up to get married, then you should be a big enough grown up to pay for it.

As we grow from adolescents to adults, we throw off the shackles of our parents for more freedom and independence. Some of us go away to college, some of us move into our own apartments, while others continue living at home but enjoy the freedom of not having a curfew. That’s part of the journey to adulthood.

The journey doesn’t stop there. Eventually we get careers and fall in love and get married. (although, increasingly couples are choosing not to bother with the marriage thing) Once it comes time for the wedding, many couples turn back into adolescents, assuming their parents will bear the brunt of the cost. And that’s not right.

Nobody is forcing anyone to get married. And unless you’re super religious, nobody is going to judge you for just moving in together. It’s a choice made by two free willed adults. Which is why it should be solely the responsibility of those two adults to pay for it.

Financially speaking, a wedding is a giant waste of money. At their best, wedding are a largely meaningless ceremony which creates a false expectation of marriage being a magical union of heavenly bliss for a lifetime. At their worst you get bridezillas and people who get pissed off because their presents aren’t good enough.

The worst part about having parents pay for a wedding is the fact that there are people getting married without having their you know what together. While I believe any two consensual adults should have the right to get married, those two adults have no right to expect someone else to finance their life choices.

That’s what it comes down to for me, personal responsibility. If you’re an adult, it’s time to start acting like one. Adults deal with their own problems. Adults don’t do things unless they can afford them. And adults don’t expect their parents to pay for their life luxuries.

So folks, if you feel the need to get married, then you better start saving for it now. Imagine the pride parents would feel if their daughter told them “don’t worry about the money guys. Just show up.” Instead we get people like my friends, who are dependent on someone else’s finances to get married.

Look! Everything is New and Shiny!

Other No Responses »

Apr 262010

Okay, it’s 11:30 at night, and I am officially tired. I have spent the majority of today screwing around with first Typepad, then wordpress.org. And after many long hours, a few swear words, I have finally made the switch. The blog is so awesome now. Everything is new, shiny, and I kinda want to take my blog home and cuddle with it.

While the blog isn’t all the way done yet, I’m just happy that I was able to get the old posts to link to the new blog, so there won’t be any problems with the change. And considering how technically inept I am, you really have no idea how happy I am about it.

So if you’re reading this in your reader, please go check out the new site. I need you to click on my ads.

Turning My Back On WordPress

Uncategorized 5 Responses »

Apr 232010

And you can turn your back… But it won’t go away
And you don’t look scared… But you should be afraid
You can shut your mouth… But you still have a say
And you just don’t care… For tomorrow today!

Billy Talent- Turn Your Back

Okay, that lyric really doesn’t have a whole lot to do with this discussion. It’s still a cool song though.

This weekend, I’m taking the plunge. I’m moving this blog from WordPress.com. I can hear the collective gasps from here. Don’t worry guys, there won’t be any problems. You’ll still get blogging goodness every day from my keyboard. You’re welcome.

The free version of WordPress is great for a blogger just starting out. They have all sorts of widgets, decent stats, as well as a nice interface that makes starting out a breeze. If you want, you can even get rid of the crappy whatever.wordpress.com address easily once you buy your own domain.

For all its strengths, there are a few major disadvantages to wordpress.com. (not to be confused with wordpress.org, the paid version of wordpress) First of all, you cannot monetize your blog. WordPress places ads on your blog, not you. You’re also limited to only WordPress widgets, and while the selection is decent, any sort of third party widget won’t work.

WordPress.com is great for getting started. Now that I’ve created a bit of something here, it’s time to upgrade.

From poking around the interwebs, I found two choices- WordPress (the upgraded version) or Typepad. The ability to customize templates with WordPress.org is impressive. So is the dazzling selection of widgets. Yet I’m not nearly advanced enough when it comes to that kind of stuff to utilize it.

Then there’s Typepad. Much like the free version of WordPress, it’s more of a platform for not so technically inclined people. While their selection of widgets isn’t as impressive, they support any third party applications. Another huge plus is the fact that they host the blog themselves. There’s no backing up of files and no worrying about figuring what hosting package to pick.

The other reason why I switched is I simply don’t understand WordPress.org. When reading other people’s reviews, it was said many times that WordPress is for tech savvy people while Typepad is for people who want to focus on writing. Perhaps in the future I’ll switch again once I get WordPress.

Plus, Typepad got high marks for being endorsed by both Seth Godin and one of my favorite sites MLB Trade Rumors.

So while there shouldn’t be any disruptions this weekend while I do the switch, please be patient if there are. Also, I’ve purchased financialuproar.com, so hopefully getting that set up as well shouldn’t be too difficult. Wish me luck!