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Leigh Baldwin & Co.

112 Albany Street, Cazenovia, NY 13035 | Phone: (315) 655-2964 Toll Free: 1-800-659-8044

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Stock of the Week


December 12th 2011 Pfizer
NYSE Symbol: PFE
Industry: Pharmaceuticals
Price as of 12/12: $20.39

Boring is beautiful. The major averages were set to break out of the recent range last week only to succumb to profit-taking once again. Although the dividend hikes keep coming. Last week GE hiked their dividend for the second time this year and the fourth time in the last year and a half. The yield is now over 4%. Two other financial related stocks Franklin Resources and Ameriprise also raised their dividends last week. The financials remain the cheapest sector, but unfortunately for good reason. Typically the markets put in a year end rally, but Europe and a number of preannouncements have pushed many investors to the sidelines. The stocks that continue to hold up are the big dividend paying stocks. Case in point, Merck has performed well since hiking their dividend a month ago pushing its' yield up to nearly 5%. The number of 4% or better dividend paying stocks is growing which is a good long term sign for equity investors. But in the mean time, we'll feature another defensive drug stock that hiked their dividend this morning. The stock of the week is Pfizer. The world's largest drug maker recently lost its' patent protection for their best selling cholesterol drug, Lipitor, but continues to generate high levels of cash flow. A couple of years ago, Pfizer cut their dividend in half from 32 cents to 16 cents per share when they acquired fellow drug maker Wyeth for $68 billion. But with two dividend hikes this year, Pfizer has made a statement to return more cash to shareholders which is a good sign for the stock going forward.

At the start of November, Pfizer easily beat earnings estimates making 62 cents a share or $3.74 billion in net income. Revenue rose 7 percent to $17.2 billion, due to new products from buying painkiller maker King Pharmaceuticals in February and a 6 percent boost from favorable currency exchange rates. Prescription drug sales totaled $14.75 billion, up 6 percent, as sales in emerging markets jumped 18 percent. Lipitor lead sales once again at $2.6 billion, down 2% year over year, although U.S. sales jumped 13% to $1.47 billion, partly from price increases this year. The big question going forward is how will Pfizer replace Lipitor? A London research firm Evaluate Pharma predicts the loss of Lipitor's patent will drop Pfizer to the number 3 drug maker by revenues next year, behind France's Sanofi SA and Switzerland's Novartis AG. Pfizer is in a race to find new products to replace sales of Lipitor, the biggest-selling drug in history, with peak annual sales of $13 billion a year. That prospect drove Pfizer's $68 billion purchase of Wyeth in 2009, and investors have been scrutinizing efforts to compensate through cost cuts and development of new medicines. Pfizer has increased research partnerships, focused on productivity and eliminated about 23,500 jobs from the 130,000 total Pfizer and Wyeth had before they combined. Management has done everything possible to mitigate Lipitor generic competition. The CEO indicated they have six products that will be launched in the near future with a number of promising drugs and vaccines in mid-and late-stage testing for several types of cancer, infections, pain, stroke prevention and Alzheimer's disease. Prevnar 13, the blockbuster vaccine against ear, brain and blood infections, saw sales jump 37 percent to $1.01 billion in third quarter, while older Prevnar 7, which protects against half as many strains of pneumococcal disease, fell 45 percent to $98 million. The world's best-selling vaccine just got approval in adults 50 and older in the European Union, and could get the same in the U.S. in January.

Pfizer's stock has performed well this year particularly verse the broader market. The valuation for Pfizer still looks good thanks in part to the dividend hikes. Currently the stock trades for 8.8 times earnings, 2.3 times sales, and 1.7 times book value of $11.71 a share. Pfizer is not a growth stock as sales are expected to decline next year due to the expiration of Lipitor's patent. Instead, Pfizer is defensive dividend stock that hopefully will once again be a growth story if they can develop a couple block buster drugs. In the mean time, the stock should hold up with the dividend yield above 4%.(Only 45 stocks within the S&P 500 have better yields). The stock will go ex-dividend once again at the beginning of February.