2 Reasons Pfizer's Stock Beat the Field in 2016

By George Budwell Markets Fool.com

What happened

Continue Reading Below

According to data fromS&P Global Market Intelligence, Pfizer's (NYSE: PFE) shares gained 1.66% in 2016. While such a modest gain may not seem impressive at first glance, the drugmaker's shares markedly outperformed the broader field of pharma stocks, shown by the dreadful performance of the iShares Nasdaq Biotechnology ETF last year:

PFE data by YCharts

So what

Pfizer's stock was able to edge higher last year -- despite the politically unfavorable environment toward pharma companies at large -- for two reasons.

Continue Reading Below

Image Source: Getty Images.

Firstly, the drugmaker returned a whopping $10.5 billion to shareholders through share repurchases and dividends during the first nine months of 2016. The $5 billion accelerated portion of the drugmaker's share repurchase program played a key role in driving the company's adjusted diluted EPS higher by 15% during the first three quarters of the year.Pfizer's strong commitment to returning cash to shareholders also kept its dividend near the top of its peer group with a yield topping 3.5% for the bulk of 2016.

Secondly, Pfizer continued to be aggressive on the M&A front in 2016 by buying both Medivation and Anacor Pharmaceuticals. Both of these acquisitions have the potential to add multiple new growth products to the drugmaker's product portfolio over the next few years, helping to offset the negative impact of the company's legacy product portfolio, which is experiencing a significant decline in earnings power at the moment.

Now what

The $80 billion question facing Pfizer and its shareholders this year is whether Trump can indeed push through his plan to reduce corporate tax rates to a flat 15% and offer companies a viable path to repatriate foreign profits. If Pfizer is able to bring back even a portion of its $80-plus billion in overseas profits, the drugmaker's shareholders could be in for a banner year in 2017.

If not, this top pharma stock still offers one of the most robust clinical pipelines in the industry, a strong balance sheet, modest near-term growth prospects, and a better than average dividend yield for a major drug manufacturer. Pfizer appears primed to continue its winning ways in 2017.

10 stocks we like better than Pfizer
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Pfizer wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of January 4, 2017

George Budwell owns shares of iShares NASDAQ Biotechnology Index and Pfizer. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.