Pfizer vs. Eli Lilly; Historical charts of bubbles and inflation; I climbed the Grand Teton
1) I've written quite a bit about pharma giant Pfizer (PFE), which you can see an archive of here. It appeals to my value-investing heart...
That's because its stock is close to a 13-year low. (In fact, it's currently at a level it first reached 28 years ago.) It also trades at 7.8 times this year's earnings and pays a 7.1% dividend.
But I have yet to recommend it because it feels like a value trap.
So yesterday's "Heard on the Street" column in the Wall Street Journal caught my eye. It expresses optimism about Pfizer's recent $7.3 billion acquisition of Metsera (MTSR), which:
... has assembled a portfolio of weight-loss drugs designed to be easier for patients to take than today's weekly shots. Its lead program is a once-monthly injection in the GLP-1 drug class, the same category as Novo Nordisk's Wegovy and Eli Lilly's Zepbound. Early data suggest it can deliver strong weight loss with fewer stomach side effects, and Pfizer expects to move it into late-stage testing next year.
The article continues that Metsera's drug could be better tolerated by patients due to its once-a-month dosing, which would give it an edge over competing drugs:
If Metsera's once-monthly GLP-1 shot can rival weekly competitors without the side effects that sank confidence in Amgen's effort, Pfizer could have a winning ticket. At today's rock-bottom valuation, the potential downside looks outweighed by the upside. The stock trades at just 7.7 times forward earnings – roughly half the industry average. In comparison, Eli Lilly fetches 27, Novo Nordisk trades at 15, and Amgen garners 13.
Intrigued, I reached out to my colleague Dave Lashmet, our Stansberry Venture Technology editor. He has forgotten more than I'll ever know about drug development and the pharma industry.
Sure enough, he just returned from a conference in Vienna, Austria, where he met with the management of Metsera – and he's skeptical that this acquisition will pay off for Pfizer. He said:
[Metsera has] decent results from Phase 2 trials, but that means their first drug is still more than four years away from FDA [Food and Drug Administration] approval. And, even if it's only once a month, it's still an injectable, whereas the big market for these obesity drugs is clearly going to be in pill form.
After their own obesity drug failed, Pfizer was desperate, so they wildly overpaid for Metsera.
2) "Well," I asked Dave, "if you don't like Pfizer, do you like any other companies in the space?"
He replied:
I love Eli Lilly (LLY) [another stock I've written about many times – archive here]. I also met with them in Vienna and I was blown away.
Yes, their stock is trading at 27 times next year's earnings, but I guarantee that analysts' estimates are too low.
There is an obesity epidemic around the world, and these drugs are the cure. The size of this market boggles my mind.
And Lilly has the best drug now (Mounjaro/Zepbound), will have the best drug next year in pill form (orforglipron; here's an August 8 WSJ article about it: Why a Weight-Loss Pill Is Still a Big Deal).
Dave continued:
Lilly announced earlier this year that they're beginning to build four new domestic manufacturing sites this year, "the largest pharmaceutical manufacturing investment in U.S. history." They've already spent $23 billion from 2020-2024 and have committed to another $27 billion, for a total of $50 billion. For comparison, just a few years ago, if a pharma company spent $1 billion on a plant, that was a big deal.
To justify this $50 billion investment, Lilly must have great confidence that it will generate $100 billion in annual sales. That's $1 trillion over a decade!
Thank you for sharing your insights, Dave!
I think Lilly looks compelling here, so I'll be discussing it with my team at Stansberry's Investment Advisory. If we decide to add the stock to our model portfolio, subscribers will be the first to know.
(If you aren't an Investment Advisory subscriber yet, you can find out how to become one right here.)
3) On September 15, I cited three examples of bull markets that had blowoff tops before crashing.
Regarding the first example, the tech stock/Internet bubble of the late 1990s... Here's an interesting chart courtesy of InvestorPlace, highlighting the similar trajectories of tech stocks from 1995 to 1998 compared with the past three years:
It's easy to create overlapping historical charts that mean absolutely nothing, so I don't want to overweigh this one.
But it somewhat reinforces the possibility that in the next year or two, we could see a melt up to a bubble like what occurred in 1999 and early 2000, followed by a bust.
4) Here's another example (shared by my friend Eric Rosen, courtesy of Apollo Academy) of overlapping historical charts, comparing inflation from 1966 to 1977 with the past 11 years:
In this case, I do not think history will repeat itself, as I don't see a big surge in inflation on the horizon.
5) Following up on my September 15 e-mail... Last week I successfully climbed the Grand Teton in Wyoming to raise money for my favorite charity, KIPP NYC charter schools.
It's the 10th year in a row I've done a climb to support the thousands of KIPPsters on their even bigger climbs to and through college, career, and beyond.
It took two full days. On the first day, we hiked and climbed for nine hours. That included Irene's Arete, which is seven "pitches" and rated 5.8 on the Yosemite Decimal System.
Here's a photo of the route:
We spent the night in tents at Jackson Hole Mountain Guides' base camp at 11,000 feet, in the shadow of the Grand:
The next day, we were up at 4 a.m. and started hiking and climbing at 5:15 a.m. We reached the summit seven hours later, then rappelled and hiked all the way back to our cars over the next six hours.
Here are some pictures from day two:
While it looks like I'm cheating death, I take steps to mitigate the danger (just as I do when investing). If you look closely, you'll see that I'm on a safety rope, which is set by my professional guide.
On the climbing sections of the route, where an uncontrolled fall would be fatal, he was always "belaying" me from above. That meant if I lost my grip and fell (which happened once), the rope would catch me – no problem!
Best regards,
Whitney
P.S. I welcome your feedback – send me an e-mail by clicking here.