A Few Years From Now, You'll Wish You Had Bought This Undervalued Stock

I've kicked myself for not buying a stock sooner more times than I'd like to admit. Even worse are the stocks I should have bought but never did. If you invest long enough, you'll no doubt feel the same way at times.

The way to avoid this regret is to identify good stocks to buy before everyone knows they're good stocks to buy. That's easier said than done, of course. However, I think Pfizer (NYSE: PFE) qualifies as a good stock to buy right now, even though some investors might disagree. A few years from now, you'll wish you had bought this undervalued stock.

Behind Pfizer's low valuation

Make no mistake about it: Pfizer is undervalued. Shares of the big drugmaker trade at a forward price-to-earnings ratio (P/E) of 10.1. The S&P 500 's forward earnings multiple of 21.5 is more than twice as high. The S&P 500 healthcare sector is much more expensive, as well, with an average forward earnings multiple of 19.9.

Why is Pfizer's valuation so low? Two reasons especially stand out.

First, the company's COVID-19 revenue has fallen like a brick. Worldwide sales for Pfizer's Comirnaty, the first COVID-19 vaccine to win approval in the U.S., plunged 87% year over year in the second quarter of 2024. Although sales for oral antiviral therapy Paxlovid rebounded in Q2, they're still well below the levels from the height of the COVID-19 pandemic.

Second, Pfizer faces a huge patent cliff. U.S. patents for kidney cancer drug Inlyta and autoimmune disease drug Xeljanz expire next year. Breast cancer drug Ibrance and prostate cancer drug Xtandi lose patent protection in 2027. Generic competition for blood thinner Eliquis will hit the market in 2028. All five are blockbuster drugs , and Eliquis ranks as Pfizer's biggest moneymaker.

Why Pfizer's long-term prospects still look good

The picture for Pfizer might look bleak at first glance. However, the company's long-term prospects still look quite good.

For one thing, I think Pfizer's COVID-19 revenue will bottom out this year. Paxlovid is already mounting a comeback, and sales of Comirnaty should at least stabilize.

There's no getting around the looming patent expirations, but sales for the impacted drugs won't evaporate overnight. Pfizer can still count on significant revenue from Inlyta, Xeljanz, Ibrance, Xtandi, and Eliquis for years to come.

More importantly, the company has new growth drivers. Respiratory syncytial virus vaccine Abrysvo is gaining momentum. Migraine therapy Nurtec ODT, picked up with the 2022 acquisition of Biohaven Pharmaceuticals, is already a huge commercial success. So is Adcetris, the cancer therapy added to Pfizer's lineup with the 2023 acquisition of Seagen.

Additional winners could be on the way. Pfizer's pipeline features 111 programs. Four await regulatory approvals, while another 33 are in late-stage clinical studies. Arguably the most important pipeline candidate of all, oral obesity drug danuglipron, is advancing into pivotal testing.

The company continues to invest heavily to fuel future growth, including $5.2 billion in internal research and development projects in the first six months of 2024. Despite its challenges, Pfizer still expects to generate growth in the second half of the decade.

Wall Street seems to believe that Pfizer's future will be brighter than its recent past. The consensus of analysts surveyed by LSEG is that the drugmaker will grow its earnings by an average of 16.8% annually over the next five years.

Get paid to wait

There's more good news: Investors will get paid handsomely to wait for Pfizer's growth to materialize. The company's forward dividend yield stands at 5.9%. CEO Albert Bourla reiterated in Pfizer's Q2 earnings call that management is committed "to maintaining and growing our dividend over time."

Thanks to this high dividend yield, Pfizer's share price doesn't have to increase much for investors to enjoy solid total returns. But I think the stock has plenty of upside potential and suspect some investors will kick themselves in a few years for not buying Pfizer when they could get it as cheap as it is now.

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Keith Speights has positions in Pfizer. The Motley Fool has positions in and recommends Pfizer. The Motley Fool has a disclosure policy .