Does Pfizer Belong in Your Portfolio?

With shares of Pfizer (NYSE:PFE) trading around $32, is PFE an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Pfizer is a biopharmaceutical company that discovers, develops, manufactures, and sells medicines for people and animals worldwide. The company manages its operations through five segments: Primary Care, Specialty Care and Oncology, Established Products and Emerging Markets, Animal Health and Consumer Healthcare, and Nutrition. Pfizer’s main products are human and animal biologic and small molecule medicines, as well as vaccines, nutritional products, consumer healthcare products, and products for the prevention and treatment of diseases in livestock and companion animals.

Three years after Pfizer dropped a bombshell on its plans to lay off more than 1,000 workers. The biopharmaceutical company has come back with some of the best news, on how it plans to use the vacated Groton site. In a joint announcement, Governor Dannel P. Malloy and Pfizer confirmed that two buildings on the company’s campus will be donated for use in bioscience research as well as act as a storage site for state data. Pfizer has already confirmed it will be donating one of its buildings to be used as a business incubator with a view of drawing entrepreneurs, scientists, startups and growing companies in the area. This comes at the back of Pfizer last year confirming it was finding it difficult to address the use of the excess capacity in the Groton Campus.

T = Technicals on the Stock Chart Are Strong

Pfizer stock has been trending higher in the last couple of years. The stock is currently trading near highs for the year and looks poised to continue. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Pfizer is trading above its rising key averages which signal neutral to bullish price action in the near-term.

PFE

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of Pfizer options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Pfizer options

25.10%

93%

90%

What does this mean? This means that investors or traders are buying a very significant amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

May Options

Flat

Average

June Options

Flat

Average

As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a very significant amount of call and put option contracts and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Increasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Pfizer’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Pfizer look like and more importantly, how did the markets like these numbers?

2013 Q4

2013 Q3

2013 Q2

2013 Q1

Earnings Growth (Y-O-Y)

-54.41%

-9.3%

360.5%

58.33%

Revenue Growth (Y-O-Y)

-25.58%

-2.39%

-7.12%

-9.3%

Earnings Reaction

2.56%

1.67%

0.44%

-4.46%

Pfizer has seen mixed earnings and decreasing revenue figures over the last four quarters. From these numbers, the markets have been pleased with Pfizer’s recent earnings announcements.

P = Excellent Relative Performance Versus Peers and Sector

How has Pfizer stock done relative to its peers, Merck (NYSE:MRK), Novartis (NYSE:NVS), Sanofi (NYSE:SNY), and sector?

Pfizer

Merck

Novartis

Sanofi

Sector

Year-to-Date Return

5.39%

12.63%

2.74%

-4.10%

5.16%

Pfizer has been a relative performance leader, year-to-date.

Conclusion

Pfizer discovers and develops medicines for people and animals around the world. The company confirmed that two buildings on the company’s campus will be donated for use in bioscience research as well as act as a storage site for state data. The stock has been trending higher over the last couple of years and is currently trading near highs for the year. Over the last four quarters, earnings have been mixed while revenues have been decreasing, which has left investors pleased. Relative to its peers and sector, Pfizer has been a relative performance leader year-to-date. Look  for Pfizer to OUTPERFORM.

Using a solid investing framework such as this can help improve your stock-picking skills. Don’t waste another minute — click here and get our CHEAT SHEET stock picks now.

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