PFIZER INC. $32 (New York symbol PFE; Income Portfolio, Manufacturing & Industry sector; Shares outstanding: 6.5 billion; Market cap: $208.0 billion; Price-to-sales ratio: 4.0; Dividend yield: 3.3%; TSINetwork Rating: Above Average; www.pfizer.com) is the world’s largest pharmaceutical company.

Pfizer gets about 45% of its revenue from 10 drugs, each of which generates over $1 billion in annual sales. They include Lipitor (for high cholesterol), Enbrel (rheumatoid arthritis), Lyrica (epilepsy), Celebrex (arthritis), Viagra (erectile dysfunction), Norvasc (hypertension), Prevnar (a pneumonia vaccine), Sutent (stomach cancer), Premarin (hormone replacement) and Zyvox (bacterial infections).

The company is also the world’s fifth-largest maker of overthe- counter drugs. Brands include Advil (pain relief), Centrum (vitamins) and Robitussin (cough syrup).

Pfizer’s revenue rose from $50.0 billion in 2009 to $67.8 billion in 2010. That’s mainly because it bought rival drug maker Wyeth for $68.2 billion in cash and stock in October 2009.

In February 2011, Pfizer paid $3.6 billion for King Pharmaceuticals, whose drugs help relieve pain and relax muscles. However, Pfizer’s Lipitor patent also expired that year, letting generic drug makers sell cheaper versions. That offset King’s contribution and lowered overall revenue to $67.4 billion in 2011.

Revenue dropped to $59.0 billion in 2012 and $51.6 billion in 2013, mainly because Pfizer sold two less important businesses.

In November 2012, it received $11.85 billion for its nutrition division, which makes baby formula and similar products. In February 2013, it sold 19.8% of Zoetis (New York symbol ZTS), its animal-health subsidiary. Pfizer then handed out the remaining 80.2% to its shareholders in a stock-swap transaction that cut its shares outstanding by 13%.

New drugs look promising

Earnings fell 4.1%, from $8.6 billion in 2009 to $8.3 billion in 2010. Pfizer issued shares as part of its takeover of Wyeth. Due to the extra shares outstanding, per share earnings fell 16.3%, from $1.23 to $1.03. Pfizer’s earnings then rebounded to $1.11 a share (or $8.7 billion) in 2011, and soared to $2.22 a share (or $15.3 billion) in 2013.

Besides Lipitor, patent protection on several of Pfizer’s other top-selling drugs will expire over the next few years. However, the company has recently launched several promising cancer treatments that should help it make up for the lower sales.

For example, sales of kidney-cancer drug Inlyta jumped 219.0% in 2013. Sales of another new treatment, Xalkori (lung cancer), rose 129.3%.

Meanwhile Pfizer is making progress with experimental breast cancer drug palbociclib. In a recent trial, it showed good results when used in combination with another treatment called letrozole. In all, the company has 81 drugs in its development pipeline.

Pfizer spent $6.7 billion (or 12.9% of its revenue) on research in 2013, down 10.7% from $7.5 billion (or 13.7% of revenue) in 2012. That’s mainly because it continues to close labs after the Wyeth acquisition.

Aiming for niche market dominance

At the same time, Pfizer is focusing its research on drugs with the greatest sales potential. Examples include treatments for less common diseases like sicklecell anemia. That gives it a better chance of dominating the market for treating these conditions.

Partnerships with other drug makers are also helping the company cut its research costs. For example, Pfizer and Bristol-Meyers Squibb (New York symbol BMY) recently started selling the anti-stroke drug Eliquis. They have also applied for permission to use Eliquis for blood clots in legs and lungs.

As well, Pfizer continues to expand its over-thecounter drug business, which supplies just 6% of its revenue. It recently bought the private company that makes Emergen-C, the top-selling brand of Vitamin C-based dietary supplements in the U.S.

In addition, Pfizer paid $250 million for the overthe- counter rights to heartburn drug Nexium. Depending on future sales, it may have to pay another $550 million.

Pfizer’s strong balance sheet will let it keep making acquisitions while maintaining its research spending. As of September 29, 2013, its long-term debt was $31.8 billion, or a moderate 15% of its market cap. It also held cash of $33.7 billion, or $5.20 a share.

The company used cash from its recent asset sales to buy back $16.3 billion worth of shares in 2013. It plans to spend a further $5 billion on buybacks in 2014.

Pfizer also recently raised its quarterly dividend for the fourth consecutive year, to $0.26 a share up 8.3% from previous payout of $0.24. The new annual rate of $1.04 yields 3.3%.

Still attractive after big jump

The stock has gained 60.0% since we first recommend it at $20 in our July 2011 issue. Even so, we feel it has plenty of room to rise. Moreover, it trades at a moderate 14.1 times the $2.27 a share the company will likely earn in 2014.

Pfizer is a buy.