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Articles by Donald E. L. Johnson

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Pfizer (PFE) looks like a good long-term buy for income investors

While I believe the stock market is due for more of a correction in the face of a sluggish economic outlook, I'm looking for stocks that will pay nice dividends and will appreciate over the next five to 10 years. Thus, this morning, I bought a small position in Pfizer (PFE) and will add to that position over time unless something goes terribly wrong. Here's why:

Instead of writing a long article on PFE, I'm going to link to a couple of good articles that speculators should read. I bought the stock because it pays a nice 4.1% dividend. In tax-exempt IRA accounts, that's a taxable equivalent of 5.79% for taxpayers in the 25% income tax bracket and 5.97% for those in the 35% bracket.

Add to that the bullish point and figure chart objective (not prediction) for PFE is $35. An analyst at Morningstar gives the stock five stars and thinks the stock's fair value is $26. This gives you a nice speculation. Morningstar says consider buying the stock below $18.20 and consider selling it above $36.40. It's at $17.59 at the moment.

For covered call traders, selling the PFE Nov. 18 call at 21 cents with 28 days to go would provide an annualized return of 15.6% if the stock closes below $18 when the option expires in 28 days. If the stock closes above $18 and is called away, the 1.19% appreciation in the stock plus the option premium will provide an annualize return of 43.65%. I won't due this trade this month because the stock will go ex-dividend before the option expires, and I don't want to lose the dividend. Also, if the stock goes up, you can make more money by not hedging with a covered call trade. The 1.19% cushion that a covered call hedge would provide doesn't interest me at this point.

LINKS: 

Just one stock: Cash, cost savings in undervlued large-cap pharma, by Craig Giventer at SeekingAlpha.com.  This is a free service, and this analysis is better than anything you can pay for or get from a broker. Also, search Seeking Alpha's site for more articles about PFE.

Pfizer's acquisition of Wyeth should continue to yield cost savings and mitigate patent losses, by Damien Conover at Morningstar.com. A subscription is required and recommended.

For more about my covered call trading strategies covered call trading, click on the "Covered Calls" category below this post or here.

Daily, weekly and point and figure charts of PFE are here.

For educational purposes only. Investigate before you speculate. I am not recommending any trades and take no responsibility for how others trade stocks, ETFs, commodities or anything else.


Posted by Donald E. L. Johnson on 10/22/2010 at 08:39 AM

StocksCovered CallsDividendStocks Medical

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