1998 Stocks for Mom
May 07, 1998

To Mom from George
by George Runkle ([email protected])

Pfizer
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235 East 42nd Street
New York, NY 10017-5755
http://www.pfizer.com
$111 11/16 as of May 5, 1998

Mom, I haven't come up with a stock for you before, mainly because you're not here. Many years ago you died of early-onset Alzheimer's disease. It was a horrible way to go, and at that time there was no treatment whatsoever. This year Pfizer caught my eye because it has produced a drug, Aricept, that treats this awful disease. While it doesn't cure it, it does help patients in the mild to moderate stages of the disease.

Pfizer is shown in First Call to have an expected five-year growth rate of 18%, which even beats Coca-Cola. Its debt ratio is only 12%, and it has a return on equity of 30%. Checking out some of the requirements in Chapter 9 of The Motley Fool Investment Workbook (which I'm sure you would have bought), this stock looks good. Pfizer is a recognized brand name. Obviously, it has repeat business. It carries a phenomenal profit margin of 18%. It has $1.589 billion in cash vs. $729 million in long-term debt. How's its past performance? Let me check (you were right, math is a necessary subject)... a 50% annualized growth rate. It was at $14 3/8 a share five years ago, and today it is up over $110 a share. Pretty good, huh?

Ok, while this company has some good financial ratios, it is trading at a really high P/E of 64. You probably wouldn't have bought it at that kind of price -- you always looked for bargains. But I still think it's a good stock, especially in a DRiP (dividend reinvestment plan). Better yet, its DRiP is handled by First Chicago, and they do a really good job running DRiPs, something you would approve of. Also, if you buy a stock in a DRiP plan, you save brokerage commissions, also something you would favor. And even better, with a DRiP you can benefit from dollar cost averaging. So, in a regular investment program, you'll buy more shares when the stock price dips. That's a bargain without any effort. With all this together, you have to admit this stock is worth thinking about.

So Mom, that's my stock for you. I know you can't buy it, so maybe I'll just buy it for one of your grandsons in a DRiP and think of you. I think you'll agree that's quite Foolish.

--George Runkle

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* A Stock for Mom represents the opinion of one Fool and in no way should be taken as the opinion of either the Motley Fool, Inc., the company in question or representative of anyone or anything else other than that specific Fool's thoughts.