PFIZER INC. (PFE) 116 +2 1/2. Drug stocks make up a big part of the S&P 500, and a big part of many managers portfolios. There is a good reason for this. They deliver predictable, steady growth in earnings. After the close on Thursday, Pfizer got the heavy upcoming earnings schedule off to a good start. They reported diluted earnings per share of $0.47, a solid 3 cents ahead of expectations, and up 37% from the year-ago quarter (net profits basis). Revenues rose 25%. These eye-popping numbers would be the envy of many a tech company in that supposedly high growth sector. But whereas demand for PC's will eventually slow down, the demand for drugs will continue to rise as the population ages. Pfizer receives a lot of attention for the new Viagra drug, but it also has a strong product line-up with Zoloft, cholesterol-lowering Lipitor, Alzheimer's treatment Aricept and others. The pipeline is also strong. Basically, this company has a lot going for it. Earnings have grown at over a 16% annual rate the past five years, and are likely to grow 15% per year or more the next five. The only question is whether all of this is now in the stock price after a tremendous run the past year. PFE now trades at a trailing 12-month price/earnings (P/E) ratio of 62, at least as "eye-popping" as the numbers reported today. Of course, trying to pick out when stocks are overvalued as been a losing game the past few years for companies that keep delivering on profit growth. The inflow of money into mutual funds keeps demand for stocks like PFE high, while stocks of companies that don't have a solid outlook for earnings growth stumble. Unless an investor thinks the overall market P/E will fall, PFE is a stock that should be able to at least rise in line with solid earnings growth. It is very pricey, but this is the type of stock in fashion with many money managers.
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