Pfizer a Healthy Buy in Gurus' Eyes

This column was originally published on RealMoney on Aug. 25 at 12:08 p.m. EDT. It's being republished as a bonus for TheStreet.com readers.

The $253 million judgment against Merck (MRK Quote) probably has sent Big Pharma executives running for aspirin, if not Prozac.

The judgment was due to Vioxx -- a so-called Cox-2 inhibitor for pain relief, widely used by arthritis sufferers -- and its link to a heart arrhythmia in a user that led to his death. New York-based Pfizer(PFE Quote), the world's largest drug maker, could also face legal problems, since its competing drug, Bextra, was withdrawn from the market in April, and another similar drug, Celebrex, though still on the market, now comes with warnings about potential heart problems.

Yet, Pfizer's stock has held up pretty well, trading between $25 and $26, and according to two guru strategies I follow, this is a good time to add it to your portfolio. You're clearly taking a chance when investing in Pfizer -- legal exposure, public complaints about Big Pharma profits, potential government regulations -- but if you have some contrarian tendencies, this might be the time to swallow the pill and buy.

The James P. O'Shaughnessy Strategy

James P. O'Shaughnessy's Cornerstone Value Strategy looks for large, well-known companies with a market cap greater than $1 billion, because these companies tend to exhibit solid and stable earnings. Pfizer's market cap of $188.3 billion easily passes this test.

The strategy's second criterion is strong cash flows, defined as cash flow per share that is greater than the mean of the market's cash flow per share, which is $1.59. Pfizer's cash flow per share is $2.20.

Companies whose total number of outstanding shares exceeds the market average are also valued, because these are the better-known and more highly traded companies. The market's average number of shares is 627 million shares, while Pfizer has 7.4 billion.

Another test is a company's trailing 12-month sales. They must be at least 1.5 times greater than the mean of the market's trailing 12-month sales. Pfizer easily surpasses this, with its sales of $53.3 billion vs. the market's $16.2 billion.