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HomeMarketAlphabet and Pfizer Stock Look Like Buys, Says This Longtime Market Maven

Alphabet and Pfizer Stock Look Like Buys, Says This Longtime Market Maven


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Joe Rosenberg’s relationship with Barron’s goes back to 1963, when he wrote a bullish article on Trans World Airlines that resulted in a pop in the stock.

Rosenberg, 89, spent much of his career at Loews (L), the conglomerate run by the Tisch family, as chief investment officer and then chief investment strategist. He retired at the end of 2018.

Rosenberg has been interviewed many times by Barron’s and has made some prescient calls. In late 2011, he compared
Microsoft
(MSFT) favorably to
IBM
(IBM), which had then drawn a big investment from
Berkshire Hathaway
(BRK.A). “Warren Buffett came pretty late to the IBM party,” he said.

Microsoft is up tenfold since then, while IBM stock is in the red. Buffett subsequently gave up on Big Blue and sold Berkshire’s stake.

Rosenberg follows the markets closely and now is bullish on both Google parent
Alphabet
(GOOGL) and
Pfizer
(PFE). “I look at companies whose stocks are down a lot this year, and none has as wide as moat as Alphabet,” he says.

Alphabet shares are off 32%, to $97.60, this year. “The easiest thing for corporate managers to do in a downturn is reduce digital advertising, but that’s already discounted in the stock,” he says.

Rosenberg agrees with United Kingdom investment manager and Alphabet holder Chris Hohn of TCI Fund Management, who recently wrote a letter urging the company to cut costs and buy back more stock.

Alphabet trades for 21 times projected 2022 earnings, but the effective price/earnings ratio is lower when stripping out losses at its money-losing “other bets” businesses, such as Waymo, a leader in self-driving cars. It has net cash of over $100 billion, or $7 per share.

Pfizer, meanwhile, has been one of the worst performers in the strong drug group this year. Its stock is down 17%, to $49.15, while rival Merck (MRK) is up 40%, to $107.

An overhang on Pfizer is the outlook for its Covid franchise, including its industry-leading vaccine, Comirnaty, and its blockbuster Covid treatment, Paxlovid. They account for over half of its projected 2022 sales of $100 billion.

Investors worry about a big decline in demand for boosters and Paxlovid, though Pfizer is optimistic. As a result, Pfizer trades for just 10 times projected 2023 earnings of $5 a share and yields over 3%.

Rosenberg thinks that the Pfizer franchise is underappreciated and that the Covid-vaccine business “is a gift that will keep on giving.” He faults management for excessive spending on research and development and acquisitions. With its Covid windfall, Pfizer ramped up R&D last year to $13.8 billion from $8.4 billion in 2019.

“The best thing that Pfizer can do is to use its free cash flow to buy back its stock,” Rosenberg says. “It’s so cheap.” The company stopped repurchasing stock in the second quarter and doesn’t see any buybacks in the current period.

Pfizer has spent $26 billion on acquisitions this year. “I don’t think Pfizer is getting a good return on its extra R&D spending,” Rosenberg says.

In a statement, Pfizer told Barron’s, “Our ultimate goal is to use the capital we have as a tool to maximize shareholder returns over the long term, striking the right balance between reinvestment in our business and returning capital to shareholders.”

Rosenberg says that if Pfizer doesn’t make changes, activists could target it.

Write to Andrew Bary at andrew.bary@barrons.com

Credit: marketwatch.com

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