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Reliable Long-term Trend to Profit From: Pfizer Inc. (PFE), Wells Fargo & Company (WFC)

The shares of Pfizer Inc. have decreased by more than -4.31% this year alone. The shares recently went up by 1.46% or $0.5 and now trades at $34.66. The shares of Wells Fargo & Company (NYSE:WFC), has slumped by -6.87% year to date as of 02/12/2018. The shares currently trade at $56.50 and have been able to report a change of -2.85% over the past one week.

The stock of Pfizer Inc. and Wells Fargo & Company were two of the most active stocks on Monday. Investors seem to be very interested in what happens to the stocks of these two companies but do investors favor one over the other? We will analyze the growth, profitability, risk, valuation, and insider trends of both companies and see which one investors prefer.

Next 5Y EPS Growth: 6.78% versus 9.37%

When a company is able to grow consistently in terms of earnings at a high compound rate have the highest likelihood of creating value for its shareholders over time. Analysts have predicted that PFE will grow it’s earning at a 6.78% annual rate in the next 5 years. This is in contrast to WFC which will have a positive growth at a 9.37% annual rate. This means that the higher growth rate of WFC implies a greater potential for capital appreciation over the years.



Profitability and Returns

Growth alone cannot be used to see if the company will be valuable. Shareholders will be the losers if a company invest in ventures that aren’t profitable enough to support upbeat growth. In order for us to accurately measure profitability and return, we will be using the EBITDA margin and Return on Investment (ROI), which balances the difference in capital structure. PFE has an EBITDA margin of 26.71%, this implies that the underlying business of WFC is more profitable. The ROI of PFE is 7.80% while that of WFC is 7.90%. These figures suggest that WFC ventures generate a higher ROI than that of PFE.

Cash Flow 




The value of a stock is ultimately determined by the amount of cash flow that the investors have available. Over the last 12 months, PFE’s free cash flow per share is a positive 0.

Liquidity and Financial Risk

The ability of a company to meet up with its short-term obligations and be able to clear its longer-term debts is measured using Liquidity and leverage ratios. The debt ratio of PFE is 0.72 compared to 1.32 for WFC. WFC can be able to settle its long-term debts and thus is a lower financial risk than PFE.

Valuation

PFE currently trades at a forward P/E of 11.37, a P/B of 3.39, and a P/S of 3.87 while WFC trades at a forward P/E of 10.52, a P/B of 1.55, and a P/S of 4.74. This means that looking at the earnings, book values and sales basis, PFE is the cheaper one. It is very obvious that earnings are the most important factors to investors, thus analysts are most likely to place their bet on the P/E.

Analyst Price Targets and Opinions

The mistake some people make is that they think a cheap stock has more value to it. In order to know the value of a stock, there is need to compare its current price to its likely trading price in the future. The price of PFE is currently at a -13.89% to its one-year price target of 40.25. Looking at its rival pricing, WFC is at a -11.84% relative to its price target of 64.09. This figure implies that over the next one year, WFC is a better investment.

When looking at the investment recommendation on say a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell), PFE is given a 2.60 while 2.80 placed for WFC. This means that analysts are more bullish on the outlook for WFC stocks.

Insider Activity and Investor Sentiment

Short interest or otherwise called the percentage of a stock’s tradable shares currently being shorted is another data that investors use to get a handle on sentiment. The short ratio for PFE is 2.80 while that of WFC is just 1.58. This means that analysts are more bullish on the forecast for WFC stock.

Conclusion

The stock of Pfizer Inc. defeats that of Wells Fargo & Company when the two are compared, with PFE taking 6 out of the total factors that were been considered. PFE happens to be more profitable, generates a higher ROI, has higher cash flow per share, higher liquidity and has a lower financial risk. When looking at the stock valuation, PFE is the cheaper one on an earnings, book value and sales basis. Finally, the sentiment signal for PFE is better on when it is viewed on short interest.

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