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Pfizer Stock Just Hit a 10-Year High: Buy, Sell, or Hold?

Keith Speights, The Motley Fool

Who would have thunk it?  Pfizer (NYSE: PFE) stock is trouncing the S&P 500 index so far in 2018. That's right, shares of the 168-year-old drugmaker have soared 17% year to date, more than twice the gains achieved by the S&P 500. In fact, Pfizer stock recently hit a 10-year high. It's not too far away from topping the all-time high set in early 2000.

Some who already own shares of Pfizer might be tempted to sell now and lock in some gains. Others could wonder if there's more room to run. Should you buy, sell, or hold Pfizer stock? I think the answer is clear.

Businessman pointing to chart going up

Image source: Getty Images.

The most important question

Probably the most important question in any situation is: "Why?" It's certainly important for investors to determine why Pfizer stock has performed so well this year. 

For most of 2018, Pfizer's share price pretty much floundered. But beginning in July, the big pharma stock took off. The surge can be partially attributed to the overall market moving higher. However, there were some factors specific to Pfizer that also explain its solid performance.

The biggest of these factors was Pfizer's announcement of its second-quarter results on July 31. Pfizer beat Wall Street's estimates for both revenue and adjusted earnings per share. The company especially benefited from strength from top-selling pneumococcal vaccine Prevnar 13 and anticoagulant Eliquis.

Also, in a span of just three weeks beginning in mid-July, Pfizer announced six significant pipeline and regulatory updates. The U.S. Food and Drug Administration (FDA) expanded the approval for Xtandi to treat men with non-metastatic prostate cancer and also approved Pfizer's biosimilar to Neupogen. European regulators approved the company's Herceptin biosimilar and approved Xeljanz as a treatment for ulcerative colitis. 

Pfizer also saw significant pipeline progress. The company, along with partner Spark Therapeutics, began a phase 3 clinical study of an experimental hemophilia B gene therapy. Pfizer and Eli Lilly announced positive late-stage results for tanezumab in treating osteoarthritis pain. This sustained stream of good news helped boost Pfizer's share price. 

Setting the stage for higher growth

For investors, however, there's perhaps an even more critical question: "What's going to happen next?" One good quarter and a half-dozen positive regulatory and pipeline announcements don't necessarily translate to future success. But in Pfizer's case, I think there's a bigger story that is quite encouraging.

Pfizer has kind of been like a runner with 10-pound weights on its ankles. These figurative weights are continued product shortage problems for the company's sterile injectables business and slumping sales for a basket of older drugs that have lost exclusivity or will soon do so.

The good news is that those ankle weights should come off in the not-too-distant future. Pfizer CEO Ian Read stated in the company's Q2 conference call that the company anticipates year-over-year comparisons for the sterile injectables business will begin looking better as early as the third quarter of 2018. And while Pfizer will feel the sting of Lyrica losing exclusivity later this year, the drugmaker should move past the headwinds associated with its older drugs after 2020.

Ian Read thinks that Pfizer has its strongest pipeline in decades. I think he's right. The company has late-stage clinical studies underway pursuing additional indications for current drugs including Bavencio, Ibrance, and Xeljanz. Pain drug tanezumab, which is being developed with Lilly, is a very promising candidate. Pfizer claims multiple cancer drugs and rare-disease drug tafamadis awaiting approval. 

In addition, Pfizer is considering a potential spinoff of its consumer health business. A corporate reorganization announced in July should facilitate such a move if the company decides to spin off the business. Pfizer expects to announce its decision later this year. The last spinoff from Pfizer -- animal health business Zoetis -- worked out very nicely for investors.

The answer is...

You've probably figured out what my view is on whether to buy, sell, or hold Pfizer stock. I think all the signs point to buying the pharma stock and then holding it for the long term.

But there is one added bonus that I haven't mentioned yet: Pfizer's dividend. The yield currently stands at 3.23%. With reinvesting that solid dividend, Pfizer's total return so far this year is more than 20%.

2018 has been a good year for the drugmaker. I suspect that even better days lie ahead.

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Keith Speights owns shares of Pfizer. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.