Pfizer Just Reminded Investors Why You Should Never Count Its Stock Out

Key Points

• Pfizer is acquiring a pharma company that has multiple GLP-1 drugs in development.

• The deal may cost the company up to $7.3 billion, which is a move Pfizer can afford to make given its strong financials.

• 10 stocks we like better than Pfizer ›

Pfizer (NYSE: PFE)'s stock just can't seem to get out of a tailspin. It faces question marks about its future growth, and investors have effectively given up on it. Even though it looks like cheap stock to own, it continues to fall in value. Over the past 12 months, it's down 18% heading into trading this week. And over a five-year period, it has declined by 30%.

There is, however, a compelling case to be made for investing in the business, and that is that Pfizer is continually expanding its pipeline via acquisitions. It's loading up on assets, which give it more potential growth opportunities down the road. For instance, it recently made a move that could help make it a big player in the GLP-1 obesity market.

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Pfizer announces plans to acquire Metsera

On Sept. 22, Pfizer announced that it would be acquiring a clinical-stage pharma company, Metsera (NASDAQ: MTSR), which focuses on developing medicines for treating obesity and cardiometabolic diseases. While Metsera doesn't have any approved drugs in its portfolio just yet, it has multiple programs in development that are of key interest to Pfizer.

The furthest one along is MET-097i, which has the potential to be an effective monthly injectable GLP-1 drug. It's in phase 2 trials, and it has shown that it can help people lose 7.5% of their body weight after 36 days. The company also has a couple of oral drugs in development, which are in earlier stages. Pfizer could end up paying up to $7.3 billion for Metsera, depending on the success of its drugs and if they hit certain milestones. The deal is expected to close before the end of the year.

For Pfizer, which previously abandoned its GLP-1 pill due to concerns related to side effects, this gives it some valuable new assets that can help make it a big player in the anti-obesity market in the future. However, it's important to note that there's no guarantee that any of Metsera's drugs will obtain approval from regulators and end up coming to market.

The company's financial strength can enable it to make key acquisitions to expand its pipeline

Pfizer has made many acquisitions in recent years to expand its operations, and Metsera is just the latest one. Spending billions just to acquire some drugs that are in development may seem like a risky move, but by having a stronger pipeline, it can help the business end up with more blockbusters that can help grow its top and bottom lines in the future. As of Aug. 5, Pfizer had 108 drug candidates in its portfolio covering many different therapeutic areas. But a key area it was lacking in was in GLP-1 obesity drugs, and that's a particularly promising growth market in healthcare; analysts at Goldman Sachs project the anti-obesity drug market could be worth $120 billion by 2035. This move significantly strengthens Pfizer's pipeline in that area.

Over the trailing 12 months, Pfizer has generated free cash flow totaling $12.4 billion, which is sufficient to pay its dividend (which costs the company approximately $9.6 billion on an annual basis) while also pursuing acquisitions and other growth opportunities. Pfizer has shown a strong interest in the GLP-1 market, and I wouldn't be surprised if it makes more moves like this in the future, given its financial strength.

Why Pfizer can be an underrated option for growth investors

Many investors appear to be overlooking Pfizer, given that the business is facing patent cliffs on multiple drugs and that its growth prospects look questionable. But the company has a vast portfolio of drugs in development, and by pursuing key acquisitions, it can accelerate its pipeline and future growth.

Investors shouldn't count out Pfizer, as it has strong financials and plenty of growth opportunities still out there. Even if not all of its acquisitions will pay off, all it can take is one or two incredibly promising drugs to turn its fortunes around.

The stock has reached levels this year that it hasn't been at in over a decade. At a price-to-earnings ratio of less than 13, it's a deeply discounted stock that could possess a lot of upside in the long run. If you're willing to be patient, Pfizer can be an excellent investment to buy and hold.

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David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Goldman Sachs Group and Pfizer. The Motley Fool has a disclosure policy.