Here's Why Pfizer Stock Is Still a Buy

Pfizer (NYSE: PFE) got a huge boost during the coronavirus pandemic thanks to its COVID-19 vaccine. Since that point, however, investors have soured on the stock, which has lost more than half its value since its 2021 high-water mark. There are very real concerns to consider with the business, but investor sentiment may have swung too far to the negative here.

What does Pfizer do?

Pfizer is one of the world's largest pharmaceutical companies, with a long history of innovation. This is an important fact to keep in mind as you look at the stock. The drug industry is capital-intensive due to the heavy research and development spending required. Adding to costs is the regulatory burden drugmakers face, since new drugs must prove both effective and safe before they are allowed to be sold.

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Further complicating matters is the fact that Pfizer is just one of many industry giants. Competition is fierce, with all drug companies working hard to come out with new drugs, often within the same treatment niche. The costs of developing a new drug are so prohibitive that pharmaceutical companies are given a limited period during which they can sell new drugs exclusively.

Patent protections are good and bad. While blockbuster drugs can produce huge profits for a company, when those patents expire, revenue and profit can decline quickly as generic versions enter the market. This is known as a patent cliff.

What's important to remember is that all of this is just business as usual for a drug company. Pfizer has proven it knows how to survive in this highly competitive industry.

Pfizer's stumble and the approach of patent cliffs

During the height of the pandemic, Pfizer was among the companies that quickly developed a vaccine. Investors extrapolated demand for that vaccine too far into the future, dramatically inflating Pfizer's stock price. When the world learned to live with COVID, and demand for the vaccine declined, the stock fell. The drop has been exacerbated by Pfizer's approaching patent cliffs.

The company's abandonment of its internally developed GLP-1 weight loss drug added to Pfizer's troubles. This event basically told investors that the company's development pipeline was not as strong as hoped. Essentially, Pfizer isn't likely to bring out a new blockbuster drug to offset the hit from its impending patent cliffs. There is a reason to be negative here, but this healthcare giant isn't sitting still.

For example, Pfizer has already purchased a company with a promising GLP-1 drug pipeline. And, just in case that drug doesn't pan out, Pfizer has agreed to distribute a GLP-1 therapy for a Chinese company if it is approved. History suggests that Pfizer is highly likely to survive and thrive over the long term, even if there is a mismatch between new drugs and patent expirations in the short term.

Pfizer requires a long-term view

Dividend investors are likely to find the stock's 6.7% yield attractive. That yield is the result of a 100% dividend payout ratio -- meaning the company devotes all its profit to the payments -- so caution is warranted if you need your dividends to pay for living expenses. A dividend cut wouldn't be a shock.

Ultimately, Pfizer is a turnaround story. It is probably best suited for more aggressive investors who are willing to take a long-term view. If the company maintains the dividend throughout the turnaround, all the better. If it gets cut, the dividend really shouldn't have been your focus anyway.

That said, interested investors may not want to wait too long here. Since it's 52-week low in early April, the stock has risen by almost 20%. Wall Street is clearly catching on to the fact that Pfizer's turnaround potential is attractive.

Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Pfizer. The Motley Fool has a disclosure policy.