Latest / Stock Picking with Fexingo: Individual Equities, Research, and Building a Concentrated Portfolio / Why Pfizer Is a Turnaround Play Worth Watching in 2026
Transcript
- Lucas: So Pfizer shares are hovering around twenty-five dollars as of this week, which is basically where they were in 2017. That's after a pandemic spike that briefly took them above fifty. And the question I keep hearing from investors is: is this a value trap, or is there actually a turnaround brewing? Luna: It's a stock a lot of people own and a lot of people hate right now. The dividend yield is pushing five percent, which tells you the market is pricing in some real risk. Lucas: Exactly. And that's the tension we want to unpack today. Because if our conversations on this show have helped you think about a decision differently — whether it's a stock like Pfizer or just how you approach risk — we'd love it if you considered supporting what we do here. We deliberately keep these episodes ad-free, and listener support is what makes that possible. If that resonates, the link is buy me a coffee dot com slash fexingo. Luna: Yeah, it's a small way to keep the show exactly what it is. Appreciate anyone who does. Lucas: Alright, back to Pfizer. The bear case is well known: the COVID vaccine and Paxlovid revenue is falling off a cliff, and a bunch of key patents expire in the next few years. The bull case is that the pipeline — particularly in oncology and rare disease — has some real shots on goal, and management is cutting costs aggressively. Luna: Let's talk about the pipeline first, because that's the part that's hardest to evaluate. What are you seeing that's concrete? Lucas: The most interesting late-stage asset is probably their antibody-drug conjugate for certain solid tumors — think lung and breast cancer. Phase three data is expected later this year. If it hits, that's a multi billion dollar peak sales opportunity. They also have a gene therapy for hemophilia that's already approved but still ramping. And they're leaning into mRNA beyond COVID — flu, RSV, shingles — though that's earlier stage. Luna: So the thesis hinges on a few binary events. That's part of why the stock is cheap — the market is skeptical these programs deliver big commercial wins. Lucas: Right. And the cost side is more predictable. Pfizer announced a four-billion-dollar cost-cutting program last year. They're closing plants, cutting jobs, streamlining R&D. That should protect margins even as revenue declines. By 2027, the Street is modeling operating margins in the high twenties, which is respectable for a pharma company. Luna: But the revenue decline is steep. I mean, from peak COVID revenue of over a hundred billion to maybe fifty this year? That's a huge hole to fill. Lucas: It is. But the market already knows that. The stock is down more than fifty percent from the high. The question is whether the ex covid business is growing. And on that front, it's actually doing okay — the legacy portfolio, excluding COVID products, grew low single digits last year. Not exciting, but stable. Luna: So the value case is: cheap multiple, decent dividend, and a pipeline that could surprise to the upside. But the risk is a pipeline miss and continued revenue erosion. How do you think about that trade-off in a portfolio? Lucas: I think it depends on your time horizon. If you're looking six months out, Pfizer is a show-me story. You need to see data. But if you're looking two to three years, the risk-reward is interesting. The stock trades at about eleven times forward earnings, which is a discount to the market and to pharma peers. And the balance sheet is solid — they have room to keep the dividend safe even if earnings dip further. Luna: That's a fair point. And we should mention the broader context — we've seen a rotation toward value this year, especially in June. The Russell 2000 is down over two percent in the last five days, so small caps are getting hit, but large value names like Pfizer might benefit if that rotation continues. Lucas: Yeah, the Russell's weakness is notable. But Pfizer is a large cap, so it's more about sector rotation. Healthcare is actually one of the cheapest sectors in the S&P 500 right now. And within healthcare, pharma is cheaper than biotech. So Pfizer sits in a part of the market that's out of favor. Luna: Which is exactly where contrarian investors look. But let's be specific: what would make you change your mind on Pfizer? What's the one thing that would turn the bear case into the right call? Lucas: The biggest risk is a major pipeline failure — say the ADC misses in phase three, or the gene therapy doesn't hit commercial expectations. That would remove the upside optionality. Also, if the dividend gets cut, that would signal management lacks confidence in the cash flow, and the stock would likely get crushed. Those are two things I'm watching. Luna: And on the flip side, what would confirm the bull case? Lucas: Positive data in the second half of this year, plus evidence that the cost cuts are flowing through to earnings. If they can show that the ex covid business is growing again, even modestly, the multiple should expand. I'd look for revenue growth in the legacy portfolio to turn positive — say two to three percent — and for operating margins to stabilize. Luna: So it's a high-conviction, low-probability trade in some ways. Not for everyone. But if you're building a concentrated portfolio, Pfizer could be a name that adds diversification and a margin of safety. Lucas: Exactly. It's not a core holding for most people, but as a tactical position with a yield and a catalyst timeline, it's worth a look. I'd say a small position — maybe two to three percent of a portfolio — makes sense for those with a three-year view. Luna: Alright, so final thought: would you buy it here? Lucas: I'd be a buyer around twenty-five dollars, but I'd set a stop at twenty-two if the pipeline data disappoints. The asymmetric payoff — limited downside if the dividend holds, significant upside if the pipeline delivers — is what makes it interesting. But it's not a set-and-forget stock. You have to watch it. Luna: That's a fair assessment. And that's the kind of specific, actionable take we aim for on this show.