Yield Hunters Are Swarming This 6.3%-Dividend Stock—And Big-League Hedge Funds are Quietly Buying the Dip

Big-league hedge funds have been taking interest in shares of Pfizer (NYSE:PFE | PFE Price Prediction) of late, with recent 13F filings revealing significant buying activity among the smart money crowd. While no single fund has backed up the truck, the steady buying of the 6.3%-yielding biopharmaceutical company is more than notable.

Of course, the yield, which once flirted with 7%, has come down by quite a lot, especially after the latest 14% past-month rally. Whether the window to buy the generous yield is closing, though, remains the big question. Either way, it’s not hard to see why smart value investors are starting to give the name a closer look, especially as tech starts getting choppier as September — a historically rough month for markets — approaches.

In any case, the $161 billion firm seems to be priced with not much in mind as the firm looks for ways to counter the impact of the patent cliff on the horizon. Of course, it can be really difficult to value a stock, as patent expirations look to act as a drag on earnings growth. Thus far, acquisitions haven’t been the answer. And while it could take some years to fuel a sustained rebound, I do think that the latest surge of enthusiasm (and considerable hedge fund buying) is a tremendously positive sign.

Pfizer’s oncology business might be underrated

The oncology business has come a long way, and the drug pipeline shows plenty of promise. That said, promise doesn’t pay the bills; something that passes all clinical trials and hits the ground running commercially does. With Moderna (NASDAQ:MRNA) stock skyrocketing nearly 180% in a single day on its cancer vaccine breakthrough, perhaps it’s oncology that’s returned to the spotlight.

Indeed, one of the biggest promises of AI was that it would help find a cure for cancer. As firms leverage the technology to do profound and transformative things within biotech, I do think that investors might wish to give some of the forgotten value names with robust oncological businesses, like Pfizer, a second look before their multiples rise and the heightened dividend yields begin to gravitate closer to historical averages.

While the next year or two remains uncertain for Pfizer, I do think that it has a lot that’s cooking in the late-stage pipeline. If some candidates end up going all the way, count me as unsurprised if shares of Pfizer were to suddenly rocket overnight. Perhaps not as vicious as Moderna’s pop since Pfizer is a diversified giant, but perhaps enough to fuel a sustained rally to higher levels. For now, Seagen remains one of the most intriguing engines that might help Pfizer rise, even as some key patents expire.

Could it help Pfizer leap over the patent cliff to even greater highs?

Time will tell, but I do think investors who missed the Moderna move might find stronger relative value (and certainly a much higher dividend yield) with Pfizer, a firm that also has a strong cancer business and a post-COVID vaccine sales hangover of sorts.

As Pfizer’s managers look to deliver a handful of blockbuster cancer drugs in the coming years, my guess is that Pfizer might navigate its looming patent cliff far better than the expectations suggest. In other words, there’s still a relatively low bar since shares haven’t done anything in the past decade.

For years, Pfizer has been a value trap, but as things move along with the pipeline and AI helps biotech firms reach milestones (and even breakthroughs) a bit faster, my guess is that the smart money isn’t placing its bets on the name for no reason.

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