THE MILLEGAN MEMO: POST-JULY 2025
Brought to you by The Woodworth Contrarian Fund
Pfizer might be a good deal even if Bobby Kennedy bans child vaccines, PPI is heating up despite its cousin CPI, and with enough influence you too can be exempt from Tariffs! A little delayed for July, but worth it all the same.
- Managing Partners Drew Millegan & Quinn Millegan
“In the business world, the rearview mirror is always clearer than the windshield.”
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IS PFIZER THE BEST BUY IN THE PHARMACEUTICAL SECTOR?
Star athlete, Travis Kelce, poses for a Pfizer COVID Vaccine ad
Pfizer Q2 earnings beat and nudged guidance higher: revenue rose 10% y/y to $14.65B, adjusted EPS was $0.78, and 2025 adjusted EPS guidance increased to $2.90–$3.10 while revenue guidance held at $61–64B. Pfizer continues paying a $0.43 quarterly dividend (current yield ~7%), and continues to prioritize deleveraging over buybacks. Notably, Pfizer discontinued its oral obesity pill Danuglipron in April, while posting growth in products like Vyndaqel, Padcev (via Seagen), Eliquis and Abrysvo. An administration proposal to ban Pfizer’s pediatric vaccine approvals would at most eliminate ~$6.946 billion of annual revenue—about 11.6% of midpoint guidance—while leaving the bulk of adult-focused and therapeutic businesses intact. Such a ban could spark headline-driven selling, but Pfizer’s diversified cash flows, strong R&D pipeline, and high‐margin adult vaccine and therapeutic franchises provide ample offset. Pfizer (PFE) trades at a forward Price/Earnings (Normalized) multiple of just 7.86×, markedly below its large-cap peers. This is ~15% lower than Merck’s and ~45% below J&J’s, despite robust R&D productivity and diversified adult‐vaccines/therapeutics cash flows. This discount persists despite comparable or superior free cash flow yields and dividend coverage.
Four weeks ago, Jim Cramer was a seller of PFE - is that a good indication for a contrarian investor? Maybe, but definitely not the only indicator that should be considered. Market “wisdom” often overshoots. This is to say when high‐profile bulls or bears exit, it can create mispricings ripe for patient, long‐term investors. Pfizer’s underappreciated dividend cushion and robust R&D engine suggest that current market skepticism may be discounting its non‐COVID growth drivers too harshly. Recent sell-offs and analyst downgrades, therefore, could represent a buying opportunity. Market sentiment often overreacts to political risks as well, meaning disciplined investors can capitalize on mispricings, securing a 6.7% yield at sub-8× earnings multiples while the company navigates through policy headwinds. The valuation gap reflects market skepticism around COVID-era revenue normalization and political headwinds (e.g., proposed pediatric vaccine ban). Yet Pfizer’s non-COVID franchises (oncology, cardiovascular, antivirals) generate over 60% of revenues, mitigating downside risk. When blue-chip insiders (e.g., Jim Cramer) turn bearish, contrarian investors can exploit transient mispricings. Pfizer’s low multiple, high yield, and solid free cash flow profile potentially make it the most compelling large-cap pharma value play today.
Please note that the Woodworth Contrarian Stock & Bond Fund, LP, of which the Millegan Brothers manage and are invested in, does not currently hold a position of PFE as of the publication date of this article, but may or may not take a position in PFE after this publication from time to time.
PRODUCER INLATION STUCK IN TRAFFIC, CONSUMER INFLATION CRUISES ALONG
The PPI posts no change month-to-month for June, up 2.3% from a year ago. PPI is the price that producers (grocery stores, factories, stores) pay for goods, materials, and services costs that go into the finished products which are then sold to the consumer. The index is a useful measurement of what costs firms are having to shoulder, but it is not usually covered to the same degree as the Consumer Price Index (CPI), which tracks the changes in prices paid by the end user. Author’s Note: PPI for July released on August 14th, posting up 0.9% month over month, which is a very hot 10.8% annualized rate, and much higher than the 0.2% (2.4% annualized) expected rate of increase.
The PPI is often used as a forward indicator of consumer inflation, which bodes well for implied inflation over the next few months. Recent CPI inflation reports have also reported relatively modest and stable prices. For the month of July, total CPI notched up just +2.4% annualized, and core CPI (limited to key consumer goods) notched up just +3.6% annualized. Both of those figures are close enough to the Fed’s long-term target rate of +2.0% that traders have become more optimistic that the Federal Reserve may be lowering overnight lending rates in the near future, buoying the stock market. There is also a third possible consequence of tariffs that has been gaining traction amongst investors as a reason for optimism - that tariffs may result in a one-time price level increase, particularly to those goods directly impacted by recent policies, but prices will stabilize after this adjustment for new higher costs from taxes. This implies that expected inflation may be - dare we say it - transitory absent other price pressures, and assuming tax rates on American importers are allowed to stabilize.
MEGACAPS GET THE GOLDEN TARIFF HALL PASS
Growth in the US stock market is concentrated in just a handful of big companies while the rest of the market languishes. Market breadth remains narrow: the top 10 stocks now make up ~37% of the S&P 500, and Nvidia alone hovers around 7.5–8% of the index—near record concentration. President Trump recently announced a 100% tariff on imported semiconductors but carved out exemptions for any firm manufacturing or committing to build chip facilities in the U.S., effectively shielding incumbents like Samsung, Intel, and NVIDIA while burdening purely offshore competitors without as much political heft.
Exemptions can be helpful, but it signals difficult times ahead for any companies not large or important enough to secure them. While they may appear “helpful,” these exemptions underscore the coming divergence between tariff-sized incumbents and smaller players. Firms lacking the scale or political heft to secure carve-outs will face compressed margins, stunted growth, and potentially accelerated consolidation. For contrarian investors, the fallout creates a bifurcated opportunity set: underfollowed, smaller names may trade at inexplicably deep discounts, even as a narrow few megacaps reap outsized policy benefits.
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Drew Millegan (left) & Quinn Millegan (right) in front of the Charging Bull in New York City.
About the Managers: Brothers Drew Millegan and Quinn Millegan manage the Woodworth Contrarian Stock & Bond Fund, a hedge fund based in McMinnville, Oregon. They grew up in the finance world, and specialize in contrarian investment strategies in the US Public and Private markets.
Something missing from your portfolio may be a diversification into the Woodworth Contrarian Fund for accredited investors. Now is a great time to diversify your portfolio with an investment into a multi-award-winning fund. An exposure to a value-based contrarian strategy is a unique opportunity for your long term capital that you’re seeking aggressive returns for. With eight years of the Woodworth Fund under management, the Millegan Brothers are trained stock-pickers and experienced venture capital investors with a proven track record. Give us a call today to discuss a liquid investment with independent administration and independently audited monthly statements and a personal relationship.
