The bulls won Thursday’s session with one of the three biggest rallies so far in 2010. The S&P was up just shy of three percent for the day and winners crushed losers. The cited drivers of the rally were the 48 percent surge in Chinese exports and positive comments about growth mainly in the Asian markets but also with the Eurozone growth forecast nudged upward as well. Ignored, at least for one day, was the slowdown in U.S. exports, continued disappointing weekly jobless claims, and an increase in regulatory and congressional meddling with several blue chip stocks (JNJ, GS, BP, DELL, etc..). Given the nature of the market to be unable to sustain any rallies during the last six weeks, we are probably in for a down day today. Horrid retail sales numbers released at 8:30 am EST probably will ensure a poor first half of the trading day.

In this sort of back and forth market, it pays to be “small” and defensive. Seek out high quality, good dividend stocks with a solid balance sheet. One to consider is Pfizer (PFE).

Overview: Pfizer Inc., a biopharmaceutical company, engages in the discovery, development, manufacture, and marketing of prescription medicines for humans and animals worldwide. The company’s Biopharmaceutical segment offers products in the areas of primary care, specialty care, established products, emerging markets, and oncology customer-focused units.

Prognosis: The stock price has been stagnant over the last year even as the overall market has run up substantially. Obviously, the health care reform saga did not help Big Pharma in general. Now that the reform has been passed, it is worth taking a second look at stocks in this sector given their low valuations, high yields and defensive nature

Valuation: PFE is selling for approximately 7 times anticipated earnings this fiscal year. The stock also has a dividend of around 5%. It is trading at low end of its five year range based on Price/Earnings, Price/Sales, and Price/Cash Flow. It also has an AA rated balance sheet. No insider sales over the last six months is reassuring sign that management thinks the stock is undervalued

Catalysts: There are several factors that we believe could provide support and impetus for a higher stock price in the near and medium term:

1. Continued synergies from Wyeth acquisition should cut costs and improve margins

2. Lipitor’s loss of patent protection in 2011 will obviously impact revenues as it is Pfizer’s largest drug by sales. However, Wyeth’s pipeline should help fill the revenue gap

3. Several promising drugs including apixaban are in the late stage of development

Recommendation(s): We believe stock should be trading at a more appropriate 9-10 times next year’s projected earnings of $2.25. Given stock’s prospects and high dividend yield; our target Price is $20-$22.50, up from current price of $14.91.Good buy and hold candidate given dividend and low valuation

Disclosure: Long PFE

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