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Why I'm Considering Selling Pfizer for Tax-Loss Harvesting Purposes

Motley Fool - Sat Dec 2, 2023

As the year comes to an end, it's time to think about which stocks to sell for tax-loss harvesting. One stock I'm considering letting go is pharma giant Pfizer(NYSE: PFE). The company's shares have dropped by a whopping 43.5% in 2023, making it a prime candidate for tax-loss harvesting.

And while Pfizer is still a dividend-paying powerhouse and its shares screen as "cheap" based on multiple valuation metrics, I'm losing faith in the company's ability to right the ship, so to speak. Here are two other issues driving me toward hitting the "sell" button on this pharma stock.

A dissappointed investor reacting to a falling stock.

Image source: Getty Images.

Pfizer's business development deals haven't been confidence-inspiring

Since Albert Bourla took over as CEO in 2019, Pfizer has been on a buying spree. For instance, the company paid $2.26 billion for the immuno-oncology drugmaker Trillium Therapeutics, $5.4 billion for Global Blood Therapeutics and its sickle cell disease portfolio, $6.7 billion for Arena Pharmaceuticals and its autoimmune pipeline, $11.6 billion for Biohaven's migraine franchise, and $43 billion for antibody-drug conjugate titan Seagen.

Most of these deals don't screen as bargains, to put it mildly. Wall Street's most optimistic estimate has Seagen generating around $3.6 billion in sales in 2024. Although the drugmaker's annual revenues are expected to grow substantially out to 2030, it may take the better part of a decade for Pfizer to simply recoup its massive investment in Seagen. The Global Blood Therapeutics deal is also loaded with question marks, with next-gen tech like CRISPR gene-editing poised to enter the market soon.

What's more, Pfizer out-licensed its tumor necrosis factor-like ligand 1A (TL1A), PF-06480605 -- a drug that was quickly scooped up by Roche for a hefty $7.1 billion -- to Roivant Sciences.TL1A therapeutics could very well become a major advancement in the field, and this drug, in particular, seems like a needle-mover for some common forms of inflammatory bowel disease.

As a shareholder, I don't like most of these moves, and the market doesn't appear to be a fan, either. While many of Pfizer's woes in 2023 have been pinned on its declining COVID-19 product revenues, I suspect its business development strategy has also played a key role. Of course, Pfizer could still prove the naysayers wrong, but the stock's beeline move lower this year is hard to stomach without a clear-cut catalyst on the near-term horizon.

Pfizer's dividend is too high

As I explained in a previous article, dividend stocks that are not sensitive to economic cycles, like pharmaceuticals, and have yields above 4% tend to underperform the market in the short and long runs, especially when the dividend is not reinvested. Pfizer currently offers a generous 5.67% yield, which doesn't augur well for its prospects in 2024.

Therefore, management may want to consider cutting the dividend, even though it may cause additional headwinds for shareholders in the short term. To be up front on this point, I didn't invest in Pfizer for its dividend income. I bought its stock for its growth potential; the dividend was a secondary factor. Income investors will probably have a very different take.

Final thoughts

Pfizer has not met my expectations as a shareholder in 2023, and its longer-term investing thesis has darkened after the company's recent setback in obesity. That's fine. It happens sometimes. The silver lining is that I can use its shares to reduce my tax liability for the year, which is a net positive.

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George Budwell has positions in Pfizer and Roivant Sciences. The Motley Fool has positions in and recommends Pfizer and Seagen. The Motley Fool recommends Roche Ag and Roivant Sciences. The Motley Fool has a disclosure policy.

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