Could Buying This Beaten-Down Healthcare Stock Make You Rich If It Recovers?

Pfizer (NYSE: PFE) is in a difficult spot right now. It has a number of blockbuster drugs nearing the end of their patent protection, which will likely lead to material revenue declines. It has fallen behind in the GLP-1 weight-loss drug race. And its payout ratio is worryingly high. Here's why you might want to buy it anyway.

Wall Street is very downbeat on Pfizer

As the short list of problems above highlights, Pfizer is not hitting on all cylinders right now. Wall Street knows this, which helps explain why the pharmaceutical company's stock has fallen more than 50% from its 2021 highs. To be fair, that high was partly driven by over-enthusiastic investors, who priced in years of COVID vaccine revenues that didn't materialize. But given the company's long and successful history, investors still seem overly pessimistic about Pfizer's future.

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After all, it is one of the world's most respected pharmaceutical companies. And even after losing half its value, it remains an industry giant with a market cap of around $150 billion. Moreover, innovation tends to be lumpy, so patent expirations don't always line up perfectly with new blockbuster drug launches. Given enough time, Pfizer is highly likely to pull out of the business funk it is in.

Some silver linings on Pfizer's clouds

For example, after the company's internal GLP-1 drug was dropped, it quickly pivoted and acquired a company with a more promising drug candidate. Pfizer isn't out of the GLP-1 drug race just yet. Beyond weight-loss drugs, the company is still advancing new migraine and oncology candidates. Given the company's successful history of drug development, it is highly likely that something will eventually click.

Meanwhile, management has stated clearly that it intends to maintain the dividend at the current level. Since dividends come out of cash flow and not earnings, it can support the dividend for a little while as it works to get earnings back into growth mode. More aggressive income investors should probably give the company the benefit of the doubt.

Pfizer's turnaround offers Income and growth

Buying Pfizer sets you up with a 6.5% dividend yield, which is roughly three-quarters of the way to the 10% return investors normally expect from stocks. Meanwhile, the sharp stock price decline positions investors for a rebound as Pfizer's drug pipeline begins to bear fruit. That's a recipe for investment riches, since buying now could mean both a robust income stream and capital appreciation for more intrepid dividend lovers.

Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Pfizer. The Motley Fool has a disclosure policy.