Editors' Pick: Originally published Jan. 22.
Global stock markets have produced a blizzard of bad news so far this year, with major indices plunging almost everywhere. As far as U.S. stocks are concerned, the correction is well under way.
In this kind of environment, are there any stocks worth buying? One proven method is to focus on things people need as opposed to things they merely want. If tough times are ahead, consumers may not be as interested in the latest gadgets as they were six months ago. But certain products have inelastic demand, which means people need them. The companies that make these products are buy-and-hold gems.
With the increasingly aging population in the U.S. and Europe, pharmaceuticals are one sector that never goes out of style. But which of the big drugmakers represents the best bargain right now? The one to buy is Pfizer (PFE) , which offers some of the best-known medicines in the world and yet is trading with a price-to-earnings ratio based on forward estimates of only 13.
The company's underlying financial numbers are good, including a debt-to-equity ratio that is noticeably lower than the industry average. Most important for a drug maker, its research pipeline has a strong track record. That's why this stock should be a part of your long-term wealth-building strategy.
Although the stock has been a steady performer for years, it came under some pressure in recent months due to concerns about patent exclusivity issues, particularly with respect to its anticholesterol drug Lipitor.
But the company retains exclusive rights to many of the top drugs in the world, and it has proven nimble in coming up with new products.
The most important new development for the company in 2015 was the launch of its metastatic breast cancer drug Ibrance following its approval by the U.S. Food and Drug Administration. Sales of Ibrance totaled more than $250 million in the firm's most recent quarterly earnings report. The pill, which essentially doubled the survival rate for certain advanced breast cancer patients, is already being widely prescribed.
The company has also scored a success with over-the-counter Nexium 24HR, making the widely used prescription medicine available for the treatment of frequent heartburn in adults. Heartburn affects more than 60 million men and women in the U.S. at least once a month, and Nexium is already one of the best-known brands in this field.
The launch of Nexium 24HR makes Pfizer a leading player in all four of the largest over-the-counter categories: pain management, dietary supplements, respiratory and, now, digestive health.
On top of all this, Pfizer is about to make the biggest M&A deal in the history of its industry. The acquisition of the Irish company Allergan for $160 billion is set to close in the second half of 2016. This will make Pfizer the world's biggest drug maker in terms of revenue.
Pfizer will be able to move its headquarters to Ireland, where Allergan is based, and where corporate taxes are substantially lower than in the U.S. This factor alone could wind up saving Pfizer $2 billion annually.
Pfizer appears to have finally turned the corner and put the worst of its patent exclusivity issues in the rearview mirror. The loss of key patents covering cholesterol-fighting juggernaut Lipitor and anti-inflammatory drug Celebrex packed some unwanted punishment to Pfizer's top and bottom lines. However, in each of the past three quarters, Pfizer has delivered operational growth once the effects of currency fluctuations, divestments and acquisitions are accounted for.
The bottom line is that Pfizer has proven its ability to grow both by coming up with great new products and by making well-timed acquisitions of potential rivals. And the steadiness of this growth stock contrasts sharply with scandal-plagued Valeant Pharmaceuticals, which grew too fast for the wrong reasons.
As we've just explained, Pfizer is a perfect holding for your retirement portfolio. Are you making the right investment moves for your retirement, or are you blowing it by making all-too-common money mistakes? There are crucial steps that you should be taking now, to build wealth over the long haul. To find out whether you'll have enough money in your later years, download our free report: Your Ultimate Retirement Guide.