U.S. stock markets are going through a historically turbulent period right now. Rising interest rates, geopolitical unrest, supply chain woes, and record-setting levels of inflation have wreaked havoc on U.S. stock prices this year.
The S&P 500's performance during the first half of 2022 was its worst on record since 1970. Likewise, the Dow Jones Industrial Average delivered its worst returns on capital in 60 years over the prior two quarters. The Nasdaq Composite, for its part, churned out an all-time low in terms of its performance during the first six months of 2022.
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Billionaire super-investors like Bridgewater Associates' Raymond Dalio and Citadel's Kenneth Griffin haven't exactly shied away from buying certain equity classes this year, however. As shown by Bridgewater and Citadel's most recent 13F filings with the Securities and Exchange Commission, these billionaire-led funds took an especially keen interest in dividend-paying pharma stocks earlier this year.
Dalio's Bridgewater hedge fund, for example, significantly upped its stake in the megacap drugmaker Pfizer(NYSE: PFE) during the first quarter of 2022. Griffin's Citadel hedge fund, on the other hand, scooped up a sizable number of shares in mid-cap pharma company Viatris(NASDAQ: VTRS) over the same period.
Pfizer: An ultra-safe income and growth play
Despite this rapid-fire buying from Bridgewater in Q1, Pfizer's stock hasn't been immune to this year's historic downturn. Through the first six months of 2022, for instance, the drugmaker's shares fell by a hefty 11.2%.
Pfizer's recent weakness, though, shouldn't concern investors with an eye toward the future like Dalio. After all, the pharma titan sports multiple pillars of value creation that bode well for its long-term outlook.
Why is Pfizer a rock solid stock to buy and hold right now? Five key reasons:
- Pfizer's shares offer passive-income investors a healthy 3% yield on an annualized basis.
- The drugmaker's above-average yield -- for a megacap stock -- is also extremely well funded, evinced by its 12-month trailing payout ratio of only 35.4%.
- Pfizer's productivity in the clinic has picked up in a big way in recent years. As a result, the company now sports top-tier franchises in cancer, heart disease, immunology, and rare diseases.
- The deep value inherent in its recent spate of small to mid-size acquisitions ought to keep the company's top line headed in the right direction for years to come.
- Pfizer's shares come across as a steal at current levels. The drugmaker's stock is presently trading at under eight times forward-looking earnings, which is among the lowest valuations within its big-pharma peer group.
Viatris: A rebound is imminent
Like its former parent company Pfizer, Viatris' stock hasn't been spared from the wrath of the raging 2022 bear market. Even though Citadel increased its position in the drugmaker by 125% in Q1, Viatris' shares still dropped by an eye-catching 22.6% during the first half of the year.
Investors have punished the company this year for its lower-than-expected annual revenue guidance, as well as its anemic growth profile. Viatris, for instance, is forecast to see a 2.4% dip in annual sales in 2023.
Why might Viatris stock be an appealing contrarian buy for a quantitative-oriented investor like Griffin? While the drugmaker's near-term growth prospects aren't stellar, Viatris' deeper value proposition is strongly supported by three key facts:
- The company's core generic drug business is still generating healthy levels of free cash flows, which help to support its 4.93% annualized dividend yield.
- Viatris' decision to sell its biosimilar business earlier this year ought to provide ample financial firepower for business development activities and shareholder rewards.
- The drugmaker's shares are incredibly cheap right now. Viatris stock is presently trading at less than three times forward-looking earnings, making it one of the cheapest stocks within the entire healthcare sector right now.
Although Viatris' stock is unlikely to rebound until its top line reverses course, this mid-cap drugmaker is building a solid foundation for a bright future. As such, it ought to be appeal to classic value investors willing to hold for the long term.
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George Budwell has no position in any of the stocks mentioned. The Motley Fool recommends Viatris Inc. The Motley Fool has a disclosure policy.
