Investing

Bad Headlines and Huge Deals Put Top Dividend Stocks on Sale

Pfizer

This top pharmaceutical stock made a gigantic splash earlier this year with a $5.5 billion purchase of Anacor Pharmaceuticals. Pfizer Inc. (NYSE: PFE) has a very strong pipeline, and being the world’s largest drug manufacturer by sales value supports the Wall Street notion that the company can generate higher long-term revenues through the accelerated growth of its new drugs over the next five years.

The company continued its acquisition plans when it announced last month another gigantic purchase, acquiring Medivation, a biotech focusing on oncology drugs for a stunning $14 billion. Medivation’s drug, Xtandi, already generates about $2 billion in yearly sales and has the potential to more than double, according to analysts. Pfizer said the deal would add five cents to earnings in the first full year after closing and isn’t expected to affect its 2016 financial guidance. Pfizer said it plans to finance the transaction with its cash holdings.

The stock was hit hard as rhetoric from Hillary Clinton and others over drug pricing pressured the stock and the sector for over a year. CEO Ian Read recently criticized a plan that Clinton proposed in September. She said that, if elected, she hopes to institute a panel that would have “aggressive new set of enforcement tools” against drugs that suddenly rise in price.

Investors receive a 3.75% dividend. The Merrill Lynch price target for the stock, which is down 15% since August, is $40. The consensus target is $39.20. Shares closed Friday at $32.18.

Wells Fargo

This large cap bank is another stock for investors to look at now for safety, dividends and solid upside potential. Wells Fargo & Co. (NYSE: WFC) is a nationwide, diversified, community-based financial services company with $1.8 trillion in assets. The company provides banking, insurance, investments, mortgage and consumer and commercial finance through 8,700 locations, 12,800 ATMs, the Internet and mobile banking. It also has offices in 36 countries to support customers who conduct business in the global economy. Wells Fargo serves one in three households in the United States.

Wells Fargo has slowly, but surely, become one of the biggest mortgage lending companies in the United States, in addition to its normal banking and brokerage businesses. A continued increase in commercial real estate lending could really boost the bank’s bottom line and overall revenue. The stock also remains a top Warren Buffett holding, and he raised his holdings in the bank to 10% on the stock’s weakness earlier this year.

The company reported inline results and earnings revisions, which didn’t go over well after the other major banks posted big earnings. Wells Fargo also had a recent public relations headache as it was revealed that employees allegedly opened up client accounts that were not approved. Things got worse recently as its CEO was absolutely eviscerated at a congressional hearing by politicians in an election year, and he has resigned under pressure. The dip in the stock due to the bad publicity could be a solid purchase level for long-term investors.

Wells Fargo shareholders receive a 3.35% dividend. The $48 Merrill Lynch price target compares with the consensus target of $50.21. Shares closed Wednesday at $45.32.

Typically negative headline weakness and the pressure from risk arbitrage accounts will go away, and these companies have been around for years and will remain around for years to come. While the volatility may stick around, the low stock prices won’t last forever.