Pfizer's Stock Is Finally Showing Signs of Life. Could This Be the Start of a Much Bigger Rally?

Pfizer (NYSE:PFE) is a stock that the market has largely forgotten about for multiple years, languishing and struggling to rise in value despite having strong fundamentals and an attractive valuation.

Recently, however, it's been picking up steam. It's up 18% this year, in what is shaping up to be its best year since 2021, when it rose more than 60% due to strong revenue growth from its COVID vaccine and pill.

Despite its recent gains this year, however, the stock remains down around 30% over a five-year period. It may still have plenty of room to rise even higher.

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A rotation may be taking place, from tech into healthcare

For much of the past few years, it's been tech stocks that have been the hot buys, due to the enormous opportunities in artificial intelligence. But with interest rates on the rise, investors appear to be thinking twice about the sector of late. In the past few days, there's been a notable shift out of tech and into healthcare, as is evident with the following two exchange-traded funds.

XLK data by YCharts

This is a small sample size, of course, but it may be the start of a new trend emerging, with investors pivoting to safer stocks that offer high yields. The healthcare sector is full of them, with Pfizer being one of the best in that regard.

At 5.8%, the stock offers one of the highest yields on the S&P 500, which is more than five times the index's average of just 1%. It's a huge incentive for income investors in search of recurring income.

Pfizer's stock still looks incredibly cheap

At first glance, investors may scoff at Pfizer's stock because of its seemingly expensive valuation. On a trailing earnings basis, its price-to-earnings (P/E) multiple is extremely high at 37. However, the company has been in the midst of restructuring its operations and has incurred impairment charges and other nonrecurring items, which have weighed on its bottom line, making its earnings worse than they otherwise would be.

But on a forward basis, its P/E multiple is around 10. That's based on how much earnings analysts expect it will generate over the coming year. That can be a better measure of how expensive the stock truly is, without all the noise in its financials.

While there are still long-term question marks about its growth, the stock remains heavily undervalued and should be trading at a far higher multiple than it is right now. As the market begins to recognize that, the healthcare stock could soar far higher.

David Jagielski, CPA 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.