We recently published a list of 8 Most Undervalued Pot Stocks to Buy According to Analysts. In this article, we are going to take a look at where Pfizer Inc. (NYSE:PFE) stands against other most undervalued pot stocks to buy according to analysts.
A decade ago, the cannabis industry was in full swing as stock valuations exploded to record highs in states across the country legalizing pot use for medicinal and recreational purposes. Fast forward, valuations have crashed as harsh realities set in. While legalization on the state level has gathered pace in recent years, marijuana remaining illegal on the federal level is turning out to be one of the biggest stumbling blocks.
Far higher taxes in handling federally prohibited cannabis and its products have hit the industry hard. Similarly, legal weed sales have faced stiff competition from the illegal market, something that has hurt companies’ ability to ramp up sales and generate significant shareholder value. The just concluded US election has added yet another layer of uncertainty for the pot industry. While Vice President Kamala Harris had given the clearest indication to legalize recreational use nationally, she lost the election waiting to see what is in store under the Donald Trump administration.
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Nevertheless, it is a fact that the pot industry suffered its biggest blow yet on the ballot on state legalization referendums failing through. North Dakota, South Dakota, and Florida all had unsuccessful referendums to legalize recreational use. Only Nebraska’s medical use referendum was successful.
Twenty-four states in the United States have legalized marijuana for adult use, and Florida might have added a sizable market for the cannabis sector. According to marijuana analytics company Headset, recreational marijuana sales in the state could have reached between $4.9 billion and $6.1 billion in the first year after legalization.
Amid the setbacks, the cannabis sector outlook remains positive as the focus shifts to reclassifying marijuana as a less serious federal offence. President-elect Donald Trump has shown that he is open to supporting changes and new laws for marijuana. This could greatly help the struggling marijuana industry.
According to ATB Capital Markets analyst Frederico Gomes, reclassifying pot as a less federally severe crime would offset any effects of failure to pass substantial amendments during the referendum. Due to the harsh treatment of Cannabis under the so-called 280E tax code, pot businesses currently pay effective tax rates of over 70%.
The provision also prevents companies dealing in schedule one or two controlled substances from claiming tax credits. Consequently, reclassification would translate to about $3.5 billion being injected back into the sector, thus lowering the overall cost for capital and sparking a flurry of activities, according to Katan Associates International founder Seth Yakatan.
“I think the combination of the rescheduling [of Cannabis] to Schedule III, having businesses able to deduct their business expenses, is building momentum for other changes. I think in short order, after this happens, very likely [there will be a] change in federal policy regarding banking. As you know, it is very hard for state-legal cannabis businesses to have bank accounts. It’s also very expensive, and they are charged a premium,” said U.S. Rep. Earl Blumenauer in an interview with the Wall Street Journal.
The most undervalued pot stocks to buy could turn out to be big winners in the regulatory environment improving under the new administration come next year.
Our Methodology
To create a list of the most undervalued cannabis stocks to buy, we looked through different cannabis ETFs to find companies that are heavily involved in the cannabis industry. We then scanned for stocks that analysts believe are undervalued with a price to earnings multiples of less than 20 and well positioned to generate significant long-term value. Finally, we ranked the stocks in ascending order based on the stock’s upside potential as of November 26.
At Insider Monkey, we are obsessed with 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)
Stock Upside Potential: 22.81%
Forward Price to Earnings Ratio (P/E): 8.78
Number of Hedge Fund Holders as of Q3 2024: 80
Pfizer Inc. (NYSE:PFE) is a pharmaceutical company that discovers, develops, and sells biopharmaceutical products. It offers medicines and vaccines in therapeutic areas of cardiovascular metabolic, migraine, and women’s health. The company made a significant entry into the burgeoning medical marijuana sector with a $6.7 billion acquisition of Arena Pharmaceuticals. Pfizer bought Arena Pharmaceuticals to boost its inflammation and immunology treatments. This deal gave Pfizer access to Arena’s experimental drug, Olorinab (APD371), which is designed to help with stomach pain related to gut disorders.
The development of cannabis-based treatments is part of Pfizer Inc. (NYSE:PFE)’s plan to diversify its product pipeline. The company is increasingly looking for ways to regain footing following a rapid decline in Covid business. In addition to cannabis drugs, the company is also betting on cancer drugs. Pfizer Inc. (NYSE:PFE)’s manufacturing optimization program, a major part of its strategy, is anticipated to save about $1.5 billion by the end of 2027. By the end of 2024, the company also hopes to save at least $4 billion in net costs. These cost-cutting initiatives aim to increase profitability and counteract possible revenue losses brought on by patent expirations.
Here’s what Parnassus Investments said about Pfizer Inc. (NYSE:PFE) in its Q1 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 most undervalued pot stocks to buy according to analysts. While we acknowledge the potential of PFE as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. 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.