For any investment, getting it to $1 million can be a lofty goal to set. It's by no means an easy task, and will require a sizable buy-in, lots of patience, and good returns along the way. Below, we'll look at whether pharmaceutical giant Pfizer(NYSE: PFE) is the type of business that has the potential to grow a $25,000 investment into $1 million, or, 40 times the original investment, over the long term.
Is this a market-beating stock?
This is the first question you should ask when thinking about whether a stock can generate serious returns over the long run. If it isn't likely to outperform the S&P 500, then you're better off simply investing in the index. The S&P has averaged a long-term return of around 10% per year. At that rate, if you invested $25,000 for a period of 25 years, then your investment would grow to a value of nearly $271,000. And if you held on for 30 years, then it could be worth over $436,000.
While those are significant amounts of money, they're still nowhere near $1 million. If you're picking an individual stock as a potential millionaire-making investment, you need to have confidence in its ability to beat the market because if it can't, then there's little chance of your investment getting to $1 million.
Historically, Pfizer's track record hasn't been great. Over the past decade, it has generated returns of just 33% while the S&P 500 has increased 173% in value; it's been nowhere near outperforming the index. But the past doesn't necessarily predict the future, and the key questions are whether Pfizer can turn the tide and whether it has what it takes to become a market-beating investment.
Pfizer is investing in growth
During the past few years, Pfizer has been generating some significant cash flow thanks to its COVID vaccine and medication. Free cash flow last year totaled $26 billion, and the year before that, it was just under $30 billion. By comparison, in 2020, its free cash was less than $12 billion. The past couple of years have provided Pfizer with some strong cash flow that it can pump back into its business to focus on future growth opportunities.
Pfizer has been investing in growth via acquisitions. Earlier this year, for instance, it entered into an agreement with oncology company Seagen to buy its business for a whopping $43 billion. But Pfizer is planning to raise $31 billion to help fund that acquisition, so it isn't relying solely on the cash it's been generating. Within the past few years, the company has also made other, smaller moves, including buying Arena Pharmaceuticals, Biohaven Pharmaceuticals, and Global Blood Therapeutics.
Pfizer's goal is to add $25 billion in new revenue by 2030 through both acquisitions and its pipeline. Unfortunately, this isn't simply aimed at becoming an aggressive growth stock. The company anticipates that it could lose up to $18 billion from its top line by the end of the decade due to losses of exclusivity in some of its top drugs.
While Pfizer's top line could technically grow due to all this wheeling and dealing, acquisitions will largely help offset the declines and headwinds that the business is facing in the years ahead. By the sounds of it, there isn't much reason to expect that Pfizer's business by the end of the decade will be a lot bigger than it is right now.
Although that's disappointing for growth investors, there's another factor that can help with the returns you might earn from the stock: Pfizer's dividend.
Pfizer's high dividend can pad its future returns
Even if Pfizer's growth isn't going to be huge, the stock may rise in value as investors see that drugs it's developing, or it's acquired, are generating encouraging revenue growth. Plus, its dividend yield of 4.6% is significant; added on top of the stock's growth, that can provide you even better returns.
When including the dividend, Pfizer's returns over the past decade total 95%, significantly more than it would have accumulated without the high payout. By comparison, the S&P 500, when including dividends, has produced total returns of 230%.
It's clear that Pfizer still needs to perform much better in the future than it has over the past decade, for it to have any hope of becoming a market-beating investment.
Don't count on Pfizer making you a millionaire
Unless you're prepared to invest significantly more than $25,000 into Pfizer, this isn't a stock that looks like it could grow to a value of more than $1 million, even over a period of 30 years. A lot can change over that time, but based on its track record and where the business is heading, there's no big catalyst that suggests the stock will perform much better than it has in recent years.
And it would need to not just beat the market to get to $1 million, it would need to outperform by a lot. At the very least, the stock would need to average a return of more than 13% for 30 years in order for a $25,000 investment to get to $1 million.
It's not impossible for that to happen, but it's not something you should count on or expect, given where the business is today and its plans for the future.
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