Better Buy: Pfizer Inc. vs. GlaxoSmithKline plc

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If your investing decisions were based solely on past performance, Pfizer Inc. (NYSE: PFE) would be the better stock to buy than GlaxoSmithKline plc (NYSE: GSK). Over the past 12 months, three years, five years, and 10 years, Pfizer's stock performance has topped that of Glaxo.

But investing decisions shouldn't be based solely on past performance. What really matters are the future business prospects. Does Pfizer still have an advantage over GlaxoSmithKline -- or are the roles now reversed? Here's how the two big pharma stocks compare.

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The case for Pfizer

Perhaps the best argument for buying Pfizer stock is that its future looks brighter than its past. By "past," I'm referring to the last five to 10 years for the big drugmaker. Let's first take a look at Pfizer's recent past.

Between 2005 and 2010, Pfizer introduced two drugs that went on to become blockbusters. From 2011 through 2016, the company launched five blockbuster drugs. Over the past five years, Pfizer grew earnings by around 4% annually. During that period, the stock gained close to 30%. That might not seem horrible, but it was less than half of the gain the S&P 500 index chalked up.

Now let's look at Pfizer's future prospects. The company believes it can win approval for up to 15 drugs over the next five years with blockbuster potential. That's more than double what Pfizer achieved over the past decade. It should be noted, though, that this number includes additional indications for some of the company's existing drugs, such as Ibrance and Xtandi.

One reason Pfizer could be on track for much better pipeline performance is the company is better now at evaluating risk and selecting its most promising assets. And Pfizer isn't just focused on evaluating its pipeline. The company is looking at all of its businesses to determine what to prune and what to nurture. As part of this effort, Pfizer is considering a possible sale or spin-off of its consumer healthcare business. The big pharma company is also continually looking at potential acquisition and partnership opportunities.

But will Pfizer really be able to grow earnings faster in the future than in its recent past? Wall Street thinks so. The consensus analyst estimate calls for annual earnings growth of nearly 7% over the next five years -- much higher than Pfizer's performance over the past few years.

Another strong case for buying Pfizer is its dividend. The dividend yield currently stands at 3.71%. Pfizer appears to be in solid financial shape to keep the dividends flowing and continuing to increase its dividend payout.

The case for GlaxoSmithKline

You could almost use the case for Pfizer to argue why GlaxoSmithKline is a stock to buy. Over the past few years, GSK has been weighed down by falling sales for older drugs. The company has been hit especially hard by declining revenue for its top-selling product, Seretide/Advair. The likely entrance of a generic version of the drug in the U.S. market soon will only make matters worse.

GlaxoSmithKline also has a long list of older legacy drugs that combined currently generate nearly one-fifth of the company's total revenue. Sales for all of these drugs are either stagnant or slipping.

Now for the good news. GSK also has a nice lineup of newer products that are enjoying solid sales growth. New respiratory drugs such as Anoro Ellipta, Relvar/Breo Ellipta, and Nucala are generating enough growth to offset the sales decline for Seretide/Advair.

The company has also gained significant market share in the HIV market with Tivicay and Triumeq. Technically, the drugs are marketed by Viiv Healthcare, a joint venture between Glaxo, Pfizer, and Japanese pharmaceutical company Shionogi. However, GSK is the majority stakeholder in Viiv.

With recent FDA approval for shingles vaccine Shingrix and promising triple-drug HIV combos in late-stage development, GlaxoSmithKline could see stronger growth in the future. Wall Street analysts project that the drugmaker could increase earnings by 9% annually over the next five years.

In addition, GSK's dividend yields 5.43%. That's one of the highest dividend yields among big pharma companies.

Better buy

At first glance, GlaxoSmithKline might appear to be the better stock to buy right now. Its dividend yield beats Pfizer's. And Wall Street thinks the company will grow earnings more than Pfizer will. However, my view is that Pfizer is the better pick.

Why? For one thing, GSK's dividend could be in trouble. The company currently spends a lot more to fund the dividend program than it earns. After this year, GlaxoSmithKline will switch to declaring dividend payouts on a quarter-by-quarter basis. My take is that a dividend cut is on the way.

I also am skeptical about the earnings growth projections for GSK. Gilead Sciences (NASDAQ: GILD) just won FDA approval for Biktarvy, its bictegravir/F/TAF HIV combo. Biktarvy seems likely to dominate the HIV market, hurting Tivicay in the process.

Pfizer has had its fair share of problems -- and still faces some with its essential health segment. However, I like the company's prospects. And I love its solid dividend. That makes Pfizer the better choice for me.

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Keith Speights owns shares of Gilead Sciences and Pfizer. The Motley Fool owns shares of and recommends Gilead Sciences. The Motley Fool has a disclosure policy.