In a few years, you’ll wish you had bought this undervalued stock

I’ve kicked myself for not buying stocks sooner more times than I’d like to admit. Even worse are the stocks I should have bought but never did. If you invest enough, you will no doubt feel the same way at times.

The way to avoid this regret is to identify good stocks to buy before everyone knows they are good stocks to buy. Easier said than done, of course. However, I believe Pfizer (PFE 0.42%) qualifies as a good stock to buy right now, even if some investors may disagree. In a few years, you’ll wish you had bought this undervalued stock.

Behind Pfizer’s low valuation

Make no mistake: Pfizer is undervalued. Shares of the major drugmaker trade at a forward price-to-earnings (P/E) ratio of 10.1. The S&P 500The 21.5 multiple of forward earnings is more than twice that. The S&P 500 healthcare sector is also much more expensive, with an average forward earnings multiple of 19.9.

Why is Pfizer’s valuation so low? Two reasons stand out in particular.

First, the company’s revenue due to COVID-19 has dropped like a brick. Worldwide sales of Pfizer’s Comirnaty, the first COVID-19 vaccine to win approval in the US, fell 87% year-on-year in the second quarter of 2024. Although sales of oral antiviral therapy Paxlovid rebounded in Q2, they are still well below levels since the height of the COVID-19 pandemic.

Second, Pfizer faces a huge cliff. US patents for kidney cancer drug Inlyta and autoimmune disease drug Xeljanz expire next year. Breast cancer drug Ibrance and prostate cancer drug Xtandi lose patent protection in 2027. Generic blood thinner competition Eliquis will hit the market in 2028. All five are blockbuster drugs, and Eliquis is the largest manufacturer of Pfizer money.

Why Pfizer’s Long-Term Outlook Still Looks Good

The picture for Pfizer might seem bleak at first glance. However, the company’s long-term outlook still looks pretty good.

First, I think Pfizer’s revenue due to COVID-19 will hit a low this year. Paxlovid is already making a comeback and Comirnaty sales should at least stabilize.

Looming patent expirations can’t be avoided, but sales for affected drugs won’t evaporate overnight. Pfizer can still count on significant revenue from Inlyta, Xeljanz, Ibrance, Xtandi and Eliquis for years to come.

More importantly, the company has new growth drivers. Abrysvo respiratory syncytial virus vaccine gains momentum. Migraine therapy Nurtec ODT, picked up with the acquisition of Biohaven Pharmaceuticals in 2022, is already a huge commercial success. So is Adcetris, the cancer therapy added to Pfizer’s lineup with its acquisition of Seagen in 2023.

Additional winners could be on the way. Pfizer’s pipeline includes 111 programs. Four are awaiting regulatory approvals, while another 33 are in late-stage clinical trials. Perhaps the most important candidate of all, the oral obesity drug danuglipron, is advancing into pivotal testing.

The company continues to invest heavily to fuel future growth, including $5.2 billion in internal research and development projects in the first six months of 2024. Despite its challenges, Pfizer still expects to generate growth in the second half of the decade .

Wall Street seems to think Pfizer’s future will be brighter than its recent past. The consensus of analysts polled by LSEG is that the drugmaker will grow its earnings by an average of 16.8% annually over the next five years.

Get paid to wait

There’s more good news: Investors will be paid handsomely to wait for Pfizer’s growth to materialize. The company’s forward dividend yield is 5.9%. CEO Albert Bourla reiterated in Pfizer’s Q2 earnings call that management is committed to “maintaining and growing our dividend over time.”

Because of this high dividend yield, Pfizer’s stock price doesn’t need to rise much for investors to enjoy solid total returns. But I think the stock has a lot of upside potential, and I suspect some investors will be kicking themselves in a few years for not buying Pfizer when they could get it as cheaply as they can now.