Dykstra: Pfizer Ready to Come Off the Bench

In the past, impotence was rarely discussed. However, when it was presented as erectile dysfunction, an all-encompassing medical term, the treatment of this rather ubiquitous disorder was redefined. In particular, a little blue pill called Viagra addressed the situation effectively, and provided a big boost to Pfizer's(PFE) stock.

Recently some investors have been negative on the pharmaceutical industry, but Pfizer looks good here. With a market cap of $190 billion, Pfizer is the world's largest research pharmaceutical company, and the company is set to report its quarterly results this Friday. Analysts expect 57 cents in EPS on a 12.3% increase in sales and a 9.3% increase in profits.

Over the past year, shares have traded in a fairly narrow range, and the stock has been hemmed in by the loss of its patent-protected monopoly on several highly profitable drugs. In order to address the loss of revenue, management has cut costs by laying off 10,000 workers and closing or selling five plants. Although the word "layoffs" makes people cringe, they ultimately benefit a corporation's bottom line.

The loss of patents does hurt the company, but it is part of the normal cycle with pharmaceutical researchers and producers. With its huge free cash flow of nearly $20 billion and its investment into research and development, Pfizer has the capacity to replace lost patents. In its R&D role, Pfizer is engaging in an important role for society in seeking new solutions to medical ailments, while at the same time boosting its profits.

In the past couple of months, Pfizer's highly successful drug Lipitor, the first FDA-approved drug to lower cholesterol, was approved for five additional uses, and its new HIV treatment, Maraviroc, was granted accelerated review by regulators in the U.S. and Europe. Maraviroc could be a breakthrough with huge benefits for HIV patients. Accelerated review is granted to medicines that have the potential to greatly advance the treatment presently available for certain ailments. The drug's approval will be decided on within six months.

Further incentive for investors is the company's 4.4% dividend yield. This company is healthy, and provides a good opportunity to benefit using deep-in-the-money calls. I will place a limit order to buy 10 contracts of the September 22.50s (PFEIX) at $4.60, or better. The stock was recently trading at $26.94.

Game of Life

The recent nor'easter left many families frazzled. New Jersey declared a state of emergency. Flood warnings overflowed counties and many children awoke yesterday to the pleasant surprise of school closings. For parents who had to stay home from work with their children, the news was not as celebrated.