Billionaire money managers have bought millions of shares of both Pfizer and Walgreens Boots Alliance this year.
Are you famous enough for picking great stocks to become a billionaire money manager? If not, then there’s a lot you could learn from the handful of folks who have.
It’s easier than ever for individuals to invest alongside the professionals. The U.S. Securities and Exchange Commission makes anyone with more than $100 million under management report their activity to the public every three months.
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The latest round of disclosures recently went live, and it seems dividend-paying healthcare stocks with high yields were on the minds of America’s wealthiest fund managers. Here’s a look at two dividend stocks that got lots of attention from billionaires lately to see if they could be right for your portfolio.
1. Pfizer
Shares of Pfizer (PFE -0.97%) are down by about half from a peak the stock set in 2021. In a nutshell, the pharma stock is down because sales of Comirnaty, the company’s COVID-19 vaccine, and Paxlovid, its antiviral COVID-19 treatment, evaporated much faster than expected.
Perhaps sensing a bargain, billionaires have been buying Pfizer with both hands. John Overdeck and David Siegel of Two Sigma Investments began a new position in the first quarter by acquiring 8.42 million shares. Daniel Sundheim at D1 Capital Partners also made a bold bet on Pfizer by purchasing 7.83 million shares for a new position.
Pfizer stock is up from its lowest point during the first quarter, but the pharmaceutical industry giant still offers a juicy 5.8% dividend yield at recent prices. Income-seeking investors will be glad to know the pharmaceutical giant has delivered annual payout raises since 2009.
Investors can expect Pfizer to announce another dividend raise this December. The company expects adjusted earnings to reach a range between $2.15 and $2.35 per share this year. That’s more than it needs to meet the annual dividend commitment currently set at $1.68 per share.
Pfizer shares have been trading for the low multiple of about 12.9 times the midpoint of management’s earnings expectation for 2024. At this low price, long-term investors can realize market-beating gains even if earnings creep forward at a snail’s pace.
In 2023, Pfizer spent $43 billion acquiring Seagen and its line of cancer therapies. Pfizer will probably report a significant earnings bump in the quarters ahead as it unwinds overlapping operations. Management predicts $4 billion in net cost savings by the end of 2024.
In addition to lowered expenses, Pfizer’s bottom line could benefit from soaring product sales. The company received a record nine new drug approvals from the Food and Drug Administration last year.
Lower expenses in the near term and new product launches that could drive growth over the next decade make this stock look like a bargain that is appropriate for most income-seeking investors.
2. Walgreens Boots Alliance
Decades of consecutive payout raises made Walgreens Boots Alliance (WBA -0.87%) one of the most reliable dividend stocks on Wall Street until it slashed its payout earlier this year, from $0.48 to $0.25 per share. The stock has fallen so far that it offers a 5.5% yield at recent prices.
Despite announcing a slashed payout this January, Walgreens attracted several billionaire investors in the first quarter, including the recently deceased Jim Simons. His firm, Renaissance Technologies, opened a new position with 1.83 million shares. Also in the first quarter, Jeff Yass increased Susquehanna’s position by 403% to 2.43 million shares.
Retail pharmacy is a low-growth industry at best. With increasing utilization of lower-cost online pharmacies, such as Mark Cuban’s Cost Plus Drugs, and profit margin pressure from pharmacy benefits management businesses, investors probably shouldn’t expect significant growth from Walgreens’ biggest operating segment.
Walgreens’ attempt to be more than a pharmacy chain and offer healthcare services has been a disaster. The company invested $5.2 billion in VillageMD in 2021, only to close 160 clinics this year and record a $5.8 billion impairment.
The retail pharmacy industry doesn’t seem like a smart place to put your money. Despite interest from billionaire investors, it’s probably best for the rest of us to avoid Walgreens stock until we see evidence that it can execute the vertical integration of a related business.
Cory Renauer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Pfizer. The Motley Fool has a disclosure policy.