The S&P 500 (SNPINDEX: ^GSPC) has a lot of winners in its ranks, which is why the famous stock market barometer is up more than 31% since the start of 2024 as I write this.
Yet in any collection numbering hundreds of stocks, there are bound to be some laggards, and that’s the case with this closely watched index. As we prepare to leave this year behind, this is a look at a now-undervalued pair that are down year to date in price, yet continue to shower their investors with dividends. Here’s why I’m drawn to these two tarnished beauties: Pfizer (NYSE: PFE) and Nike (NYSE: NKE).
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In the somewhat upside-down world of the pharmaceutical industry, a scary global health emergency can be quite the boon for business. During the COVID pandemic’s height, for example, Pfizer was not only the co-developer of the widely distributed Comirnaty vaccine, it was also the entity behind the go-to drug therapy Paxlovid. This one-two combination pushed revenue and profitability stratosphere-high during those otherwise trying times.
That was then, this is now. For investors, it’s been a case of “What have you done for me lately?” with Pfizer. Comirnaty and Paxlovid are hard acts to follow, and both the company’s top and bottom lines are down from their pandemic peaks.
Adding to Pfizer’s challenges, activist investor Starboard recently bought an anchor stake, and has since been agitating for changes in a pull-no-punches, activist investor sort of way. Starboard essentially argues that Pfizer’s strategy of acquiring promising drugs is pricey, and hasn’t produced meaningful results.
I look at it differently. The pharmaceutical development process is arduous and resource-consuming, so for a deep-pocketed operator like Pfizer, it often makes sense to buy products that have already traveled some distance down the pipeline. I think the company’s deal-making has been sensible, like when it closed a $43 billion arrangement to acquire cancer-focused biotech Seagen late last year.
Pfizer left Starboard with a bit of egg on its face with the third-quarter results it unveiled at the end of October. Again, COVID is still a menace, and thankfully for the world — and Pfizer investors — Comirnaty and Paxlovid were ready for the fight. Sales of both leaped on a year-over-year basis, helping the company to a monster 31% improvement in revenue (to $17.7 billion), and a flip into non-GAAP (adjusted) profitability, to more than $6 billion.
