Investors often find substantial gains by purchasing stocks of reputable companies when they are experiencing temporary challenges that result in a decline in stock prices. Provided the business remains fundamentally sound, adding such stocks to a portfolio at a significant discount can prove beneficial in the future.
Stocks generally trade at reduced prices when there are uncertainties or concerns about a company’s future performance. However, in the cases of Pfizer (NYSE: PFE) and Comcast (NASDAQ: CMCSA), these concerns seem exaggerated. Both companies are robust with their stocks currently undervalued, presenting a potential buying opportunity.
Pfizer
Over the past five years, Pfizer’s stock value has fluctuated, initially soaring during the pandemic due to high demand for its COVID-19 vaccine, Comirnaty, and prescription drug, Paxlovid. However, as investors express concerns about future growth amid looming patent expirations, the stock has plummeted, wiping out gains from the pandemic period. Currently, Pfizer’s share price is 18% lower than five years ago.
Analyst projections suggest the stock trades at a forward price-to-earnings ratio of less than 9, indicating a significant undervaluation. Investors appear skeptical about Pfizer’s growth strategy, which includes acquiring other healthcare businesses, such as the $43 billion purchase of the oncology company, Seagen, in 2023.
The apprehension stems from imminent patent expirations on several drugs, potentially reducing Pfizer’s revenue by $18 billion later in the decade. In response, the company has been making acquisitions and expanding its pipeline. CEO Albert Bourla remains confident in offsetting the revenue shortfall through strategic deals and new drug developments.
While no significant growth is anticipated, Pfizer expects revenue for this year to range between $61 billion and $64 billion, aligning with last year’s $63.6 billion, reflecting the company’s stability. Despite facing risks and uncertainties, the stock’s current price appears to offer a compelling investment opportunity, given its potential for future gains.
Comcast
Comcast presents another stock worth considering due to its attractive valuation, with a forward P/E ratio of 9. Despite trading at a discount, the company’s performance is relatively stable. Last year, Comcast reported a revenue of $123.7 billion, marking a growth of nearly 2% year-over-year, while adjusted net income improved by over 5% to $16.2 billion.
Comcast’s global operations are diverse, encompassing theme parks, movie studios, streaming services, internet services, TV channels, and cable networks. The company plans to spin off some cable networks, including CNBC and MSNBC, into a new entity currently referred to as "SpinCo," expected to generate about $7 billion in annual sales by the end of September 2024. This spinoff is unlikely to significantly impact Comcast’s overall revenue but could enhance resource allocation and profitability.
Additionally, the launch of a new theme park in Florida, Universal Epic Universe, in May may serve as a long-term growth driver. While current economic conditions, including tariffs and trade disputes, could affect the park’s immediate financial impact, improved economic conditions could significantly boost Comcast’s theme park business in the future.
Comcast’s robust fundamentals and potential catalysts, such as the spinoff and the theme park launch, indicate promising prospects for improved profitability. Investors willing to invest in Comcast now may realize favorable returns in the long term.
David Jagielski has not taken positions in any of the mentioned stocks. The Motley Fool holds positions in and recommends Pfizer and Comcast.
