Imagine you are an investor in early 2009, consider buying shares from Pfizer (NYSE: PFE). The US is in a deep recession. Many investors are still worried about shrinking the market just a few months earlier. Sales glide for Pfizer’s cholesterol drug Lipitor, the best-selling drug in the world. Several of the company’s other top drugs are also under pressure.
Would you have bought Pfizer stock despite the headliner? Or would you have been looking for a better alternative? It’s hard to know for sure what choice you would have made more than 11 years ago. But we can see in retrospect how buying the pharma stock would have paid off. Here’s how much money you would have today if you had invested $ 1000 in Pfizer in the last recession.
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Timing made the case
The exact timing of when a Pfizer stock purchase was made in the last recession makes a lot of sense. The Great Recession began in December 2007 and ended in June 2009. Let us look at three scenarios: Pfizer buys near the beginning of the recession, at the bottom during the recession, and near the end of the recession.
An investment of $ 1000 in Pfizer at the end of December 2007, around the beginning of the recession, would have bought 44 shares. Today, those shares would be worth a little over $ 1,690.
If you had bought Pfizer shares instead on March 2, 2009 – the lowest point in the last recession – you would have raised $ 1000 85 shares. (You could have bought almost 86 shares, but sharing shares were not an option back then.) If you held on to these shares, you would now have almost $ 3,270.
What if you waited to buy Pfizer shares until near the end of the recession in late June 2009? You could have 67 shares. Fast forward to today, and those shares would be worth nearly $ 2,580.
Your timing would have made the difference between getting a return of 69%, 158%, or 227%. In fact, however, your return would have been greater in any of the three scenarios. Pfizer paid dividends throughout the entire period.
How important were these dividends? If we used the best-case scenario to buy Pfizer shares at the bottom, you would have a profit of more than 400% (roughly $ 5,000 today) instead of a profit of 227%.
Factors Affecting Pfizer Performance
Even though Pfizer has made solid gains since the last recession, the S&P 500 Index it went even better with a total return of more than 490% since March 2009. Why has Pfizer performed so much?
The main factor that hurt Pfizer was what many referred to as its patent cliff. Pfizer lost U.S. patent exclusivity to Lipitor in 2011. The following year, the U.S. lost exclusivity to blockbuster erectile dysfunction drug Viagra and overactive bladder treatment Detrol. In 2013, anti-inflammatory drug Celebrex went off-patent. Pfizer managed to extend its patent protection for Lyrica a little longer than originally expected, but the medicine for nerve pain still lost exclusivity last year.
With sales falling for so many of its top-selling drugs, it’s not surprising that Pfizer’s shares have not generated too impressive profits in the last 11 years. But there was another less obvious reason why Pfizer did not deliver the kinds of returns investors were hoping for: a big dividend cut in 2009.
Pfizer withdrew its dividend payment in 2009 to free up funds for a massive acquisition of Wyeth. It took almost a decade for the company’s dividend to return to pre-recession levels. However, the Wyeth deal added much needed revenue with products including pneumococcal vaccine Prevnar and anti-inflammatory drug Enbrel.
Invest $ 1000 in Pfizer now?
All that is water under the bridge. The more important question is: Should you invest $ 1,000 in Pfizer now that we’re in another recession?
The good news is that Pfizer will be in a much stronger position by 2020 than it was during the last recession. It has multiple drugs with rapidly growing sales, including including blood-thinner Eliquis and drugs with rare diseases Vyndaqel and Vyndamax.
Even better is that Pfizer will soon be rid of its low-growing and now-growing older drugs like Lyrica with the planned merger of its Upjohn unit with Mylan. Pfizer’s dividend will be slightly lower after the transaction closes, but will still be attractive.
Pfizer’s pipeline also appears to be in good shape. In particular, investors are excited about the prospects for Pfizer’s and BioNTechCOVID-19 vaccine candidate BNT162b2. The two companies recently won a $ 1.95 billion deal with the U.S. government to deliver 100 million doses of the experimental vaccine.
My opinion is that buying Pfizer at the moment is a smart move. I think the pharma file will make the S&P 500 better between now and the next recession.
