We recently compiled a list of the 10 Best Undervalued Stocks to Buy According to Reddit. In this article, we are going to take a look at where Pfizer Inc. (NYSE:PFE) stands against the other undervalued stocks. If interested, read our recent piece on the 10 Most Undervalued Stocks to Buy for Under $20.
Retail investors often discuss their investments on platforms such as Reddit and have become a major market force in recent years. According to a report, inflows from retail investors in the stock market between 2014 and 2019 averaged around $200 million, with a peak of $730 million in 2015. The figure spiked to $1.2 billion in 2020, with daily flows reaching $1.48 billion in 2021. Over the next couple of years, the value of inflows hovered between $1-1.4 billion per day, driven by commission-free online trading platforms and stimulus payments from the government. The surge in investor inflows is also owed to the pandemic, during which low interest rates and bond purchases by the Federal Reserve pumped heavy money into the American financial system.
The year 2024 has already been a healthy year for the American stock market, driven by a strong performance by technology stocks. Tom Lee, the co-founder and head of research at Fundstrat Global Advisors, is bullish on the ongoing fiscal year and anticipates the market to triple in size by the end of the decade.
The two major factors driving Lee’s bullish projection were the global labor shortage and a surge in the population of millennials. He mentions how millennials are the largest generation shaping the economy and are set to inherit big as we approach the generational wealth transfer of at least $80 trillion. According to a report, by 2030, millennials will have five times more wealth compared to what they have today. Moreover, the past two incidents of global labor shortage led to major spikes in technology stocks, and Lee is expecting the same again this time. However, he also warns of risks that could undermine his positive outlook, including AI backfiring, global recession, and geopolitical instability.
This uncertainty about the stock market, coupled with stocks’ volatility, makes it difficult for investors to ascertain the true value of the stock they want to invest in. American billionaire hedge fund manager, Bill Ackman, in May this year, discussed the current state of value investors and acknowledged that predicting the durability of a stock is far harder than building a financial model in the world of investment. Responding to a question about the use of AI to analyze stock investments and financial markets, Ackman stated that AI platforms might help in decision-making over the short run, but there is no guarantee that they would continue working over the long run.
Value investors purchase stocks they believe have a high value but their share prices do not reflect the stock’s actual worth, aiming to benefit when the market corrects itself. If the correct stocks are picked, it can lead to hefty returns for the investors through share price performance. One way of picking out the right stocks is noticing what the hedge funds are doing. Insider Monkey regularly covers top hedge fund stocks across industries for each quarter, and you can keep up with the information by following our website and subscribing to our newsletter. One such example is the 10 Best Aerospace and Defense Stocks to Buy Now.
Methodology
We went through several threads on Reddit to identify the most talked about top undervalued stocks according to investors on the platform. After gathering a list of companies, we went through a stock screener to verify that these stocks were undervalued. Then we sorted and listed the stocks in ascending order of how frequently they were mentioned on Reddit for being undervalued. In cases where two or more stocks were level on the metric, we outranked one over the other based on hedge fund sentiment about the stocks in question. Insider Monkey’s database of 920 hedge funds for Q1 2024 was used for that purpose.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A medical technician wearing protective gloves and a mask mixing a biopharmaceutical solution.
Pfizer Inc. (NYSE:PFE)
Investors on Reddit that consider the stock undervalued: 11
Pfizer Inc. (NYSE:PFE) has been in business since 1849 and is one of the premier pharmaceutical companies in the world, selling a wide range of drugs and vaccines. The company had a stellar performance during the first quarter of 2024, with operational revenue (exclusive of coronavirus treatments) gaining 11%, driven by an increase in sales of its well-established drugs and a strong show from its recent acquisition, Seagen Inc. The company also smashed analyst estimates, posting an EPS of $0.82 per share, against forecasts of $0.52. This was the fourth successive quarter during which Pfizer Inc. (NYSE:PFE) had beaten industry estimates. Moreover, according to Insider Monkey’s database, Pfizer is the best healthcare stock to buy under $50, with 77 hedge fund holders bullish on the company.
The company has a current trailing P/E ratio of 20.92, fairly lower than the industry average. Both industry analysts and investors on Reddit continue to view the stock as undervalued. There is consensus among analysts on the stock’s Buy rating, with an average target share price of $35.69, which represents an upside of 19%. There is anticipation among investors that its operating margins will further improve and result in a spike in the share price after the company meets its cost-cutting goal of $4 billion. The recent acquisition of a biotechnology company, Seagen Inc., has also raised investors’ expectations.
Parnassus Value Equity Fund stated the following regarding Pfizer Inc. (NYSE:PFE) in its first quarter 2024 investor letter:
During the quarter, we added new positions in Pfizer Inc. (NYSE:PFE), NICE and Charter Communications. We purchased Pfizer to capture the potential upside from any turnaround following the COVID-induced boom-bust cycle of the last few years. Pfizer’s stock price sank by more than 40% in 2023 as COVID-19 vaccine revenues rolled off, providing an attractive entry point for us. The company completed its acquisition of Seagen, which should strengthen Pfizer’s pipeline in antibody-drug conjugates (ADC). Pfizer also offers an attractive dividend yield.
Overall PFE ranks 5th on our list of the best undervalued stocks to buy according to Reddit. You can visit 10 Best Undervalued Stocks to Buy According to Reddit to see the other undervalued stocks that are on hedge funds’ radar. While we acknowledge the potential of PFE as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than PFE but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.