Buying stock in great companies when they are dealing with some short-term issue that creates stock price weakness can set investors up for big gains down the road. As long as the business is still in good shape, adding it to your portfolio when it's trading at a sizable discount can look like a brilliant move in the future.
Stocks normally trade at discounts when there are concerns or question marks about the company's future performance. But in the case of Pfizer(NYSE: PFE) and Comcast(NASDAQ: CMCSA), the concerns look overblown. These are two great companies with stocks trading at absurdly low valuations. Here's why they're worth buying right now.
Pfizer
Over the past five years, Pfizer's stock has gone from boom to bust. The pandemic sent the stock price soaring as demand for Pfizer's COVID-19 vaccine (Comirnaty) and prescription (Paxlovid) helped the business post record revenue and earnings. But with investors looking ahead and questioning where future growth will come from, especially as the company faces multiple patent cliffs, the stock proceeded to crash. Remarkably, the healthcare stock has now given back all of the gains it amassed during the pandemic and is trading lower than where it was five years ago, with its share price down 18% over that time frame.
Based on analyst estimates for earnings, the stock trades at an incredibly cheap forward price-to-earnings (P/E) multiple of less than 9. It's a significant discount, as investors appear to be doubtful that Pfizer's growth strategy will pay off. The company has been acquiring other healthcare businesses in an effort to bolster its growth prospects, including a $43 billion purchase of oncology company Seagen in 2023.
There are valid reasons for the apprehension: Pfizer faces patent expirations soon on multiple drugs, including Eliquis, Vyndaqel, Xeljanz, Ibrance, and Xtandi. That could total an $18 billion hit to its top line before the end of the decade, which is why the company has pursued acquisitions and expanded its pipeline. CEO Albert Bourla is confident the company can make up for the shortfall through its deals and new drug development.
The company anticipates similar revenue numbers this year ($61 billion to $64 billion) compared to what it posted last year ($63.6 billion). There isn't any meaningful growth on the horizon, but simply avoiding a decline in revenue may be the silver lining for investors; the business isn't struggling.
While there's some risk and uncertainty ahead, the stock's current price is heavily discounted, which is why I think there's a good opportunity here. Some sort of discount is justifiable, but Pfizer's so cheap right now that it's almost a no-brainer buy given its potential upside.
Comcast
Another cheap stock investors may want to consider loading up on right now is Comcast. At a forward P/E of 9, it's also heavily discounted, even though the business isn't doing all that badly. Last year, the telecom and media company reported $123.7 billion in revenue, for an increase of just under 2% year over year. And adjusted net income rose by more than 5% to $16.2 billion.
The global business is diverse; perhaps too diverse, as it includes theme parks, movie studios, streaming services, internet operations, and TV channels and cable networks, all under one umbrella. But the company plans to spin off some of its cable networks, including CNBC and MSNBC, into a new company. The new business, which for now is just called "SpinCo," should generate around $7 billion in annual sales (based on the 12-month period ending Sept. 30, 2024). The spinoff won't make a drastic dent in Comcast's top line, but may help the company better utilize its resources and improve overall profitability.
Another catalyst that may help the business in the long run is the launch of a new theme park in Florida, the Universal Epic Universe, in May. Unfortunately, it comes at a time when economic conditions are worrisome, amid tariffs and trade wars, and that could affect its impact on the company's financials in the near term. But once economic conditions improve, it could give Comcast's theme park business a meaningful boost (the segment generated minimal growth during the last three months of 2024).
Comcast has strong fundamentals and potential catalysts (spinning off cable networks, a new theme park) that can improve its future bottom lines. I'm optimistic that its stock can provide good returns for investors who are willing to buy today and hang on for the long haul.
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David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Pfizer. The Motley Fool recommends Comcast. The Motley Fool has a disclosure policy.
