Most people like to buy products when prices are cheaper. That’s why you’ll probably see lots of car dealers, furniture stores, and retailers advertising special sales during the Memorial Day weekend.
However, many investors are leery of buying a stock that has fallen sharply. Why? It’s often because they’re worried about getting caught in a value trap.
But sometimes beaten-down stocks offer great bargains to forward-thinking investors. Pfizer (PFE 1.28%) is a great example, with its shares down around 57% below the previous high. I think, though, that this ultra-high-yield dividend stock is one to buy hand over fist.
Real challenges
When a stock plunges as much as Pfizer has, there must be a reason behind the decline. Pfizer faces some real challenges that investors shouldn’t ignore.
The main factor causing the big pharma stock to initially sink back in late 2022 and 2023 was rapidly declining sales of its COVID-19 products. Waning worries about the pandemic, combined with increased vaccine skepticism, delivered a double-whammy to Pfizer.
Product and pipeline setbacks have also hurt the drugmaker to some extent. Last year, Pfizer voluntarily withdrew its sickle cell disease therapy, Oxbryta, from the market because the benefits didn’t outweigh the risks. More recently, the company discontinued development of experimental oral obesity drug danuglipron after a patient in a clinical trial had a drug-induced liver injury.
Pfizer is also preparing for the patent expirations for several top-selling products. Cancer drug Inlyta loses patent exclusivity this year. Autoimmune disease drug Xeljanz and blood thinner Eliquis go off-patent next year.
If all that isn’t enough, Pfizer could be impacted by President Donald Trump’s policies. The president has threatened tariffs on pharmaceutical imports. His administration also plans to implement international reference pricing, also known as most-favored nation (MFN) pricing. This would tie the prices paid for drugs in the U.S. to the lowest price paid by other developed countries.
A better story than meets the eye
You might think Wall Street would scream for investors to avoid Pfizer like the plague with all that bad news. However, that’s not the case. Eight of the 25 analysts surveyed by LSEG in May rate Pfizer as a buy or strong buy. All of the others surveyed, except for one outlier, recommend holding the stock. The average 12-month price target for Pfizer reflects an upside potential of 28%.
Why is there a significant level of optimism on Wall Street about this beaten-down pharma stock? For one thing, Pfizer isn’t nearly as reliant on COVID-19 product sales as it was during the peak of the pandemic. In the first quarter of 2025, COVID-19 vaccine Comirnaty and antiviral therapy Paxlovid made up less than 7.7% of total revenue.
Pfizer hopes to delay the loss of exclusivity for several drugs by securing patent term extensions. More importantly, the company has multiple rising stars that it thinks can more than offset the sales declines from the drugs that lose exclusivity over the next few years.
Image source: Getty Images.
Look for business development deals to help further boost growth. Pfizer recently announced it’s licensing a promising cancer drug being developed by Chinese drugmaker 3SBio. CEO Albert Bourla hinted on the company’s Q1 earnings call that Pfizer could pursue partnerships or acquisitions to bolster its pipeline and specifically mentioned obesity.
The Trump administration’s policies create uncertainty for Pfizer. However, President Trump himself assured pharmaceutical industry leaders they would have plenty of time to adjust operations before steep pharmaceutical tariffs go into effect. Also, global law firm Reed Smith concluded after reviewing the president’s executive order about MFN drug pricing:
[A]bsent congressional legislation authorizing the imposition of MFN prices — which the pharmaceutical industry and many in Congress still oppose — it remains highly questionable whether the Trump Administration will be able to impose any reduction of pharmaceutical prices to match those in other countries.
Two key reasons to buy Pfizer stock
I don’t think that Pfizer is a stock to buy hand over fist just because its story is better than meets the eye (although this is good news). Instead, I have two key reasons for liking Pfizer right now.
First, the price is right. Pfizer’s shares trade at a little over 8 times forward earnings. That cheap multiple might be justified if the company had no growth prospects, but that’s not the case. Pfizer’s price-to-earnings-to-growth (PEG) ratio, based on five-year earnings growth projections, is a low 0.6. This indicates the stock’s valuation is very attractive relative to its growth prospects.
Second, Pfizer’s forward dividend yield stands at 7.47%. At first glance, the drugmaker’s dividend payout ratio of 122.5% might seem concerning. However, Pfizer has sufficient free cash flow to fund its dividend at the current level. It also anticipates cost savings of $7.2 billion by 2027 that should provide more financial flexibility.
The bottom line is that Pfizer should be in a pretty good position to navigate its challenges. The stock is dirt cheap. Its ultra-high dividend yield provides a nice platform from which to deliver solid total returns. All in all, I think Pfizer meets the bar as a stock to buy hand over fist.