(FORTUNE Magazine) – For pharma investors the symptoms of anemia--or worse--are everywhere: Drug recalls. Patent expirations. A dearth of new blockbusters. Pfizer (PFE, $27), the largest pharmaceutical company in the world, has had its share of troubles, most recently with the recall of pain drug Bextra. To make things worse, in April the company lowered its earnings forecast for 2005.

The unrelenting bad news has pounded Pfizer's shares. And that, say analysts, makes them a bargain. The stock is trading at 13.7 times estimated 2005 earnings. That's nearly a five-year low and makes Pfizer the cheapest stock in the pharma group, which has an average price/ earnings ratio of 17.5. And Pfizer offers the bonus of a 2.8% dividend yield.

Pfizer has plenty to recommend it. The company boasts a roster of mega-selling drugs, including Lipitor, Norvasc, Zoloft, and Viagra, as well as what UBS analyst Carl Seiden calls an "underappreciated" set of drugs in development. Moreover, as Seiden puts it, "it's a company that has historically delivered on its guidance."

Even better, he notes, "Pfizer has unbelievable financial flexibility." The company holds a huge amount of cash--$20 billion as of the end of 2004--that it could use to make acquisitions (biotechs are among the potential targets, according to analysts), pump up its drug pipeline, or arrange licensing deals. All of that, along with the $4 billion in cost cuts announced in April, should allow the company not only to keep generating cash but also to begin improving earnings.

The biggest risk is a lawsuit challenging Pfizer's patents on Lipitor, which accounted for more than 20% of the company's revenues in 2004. The trial ended in December, but the judge has yet to issue a verdict. An adverse decision could eventually short-circuit a patent scheduled to expire in 2010 by giving another manufacturer the right to sell a generic version of Lipitor. But most analysts believe that Pfizer will prevail. Tim Anderson of Prudential points to the fact that the suit focuses on "compound" patents, which govern the drug's molecular design. Such patents are much harder to invalidate than "process" patents (which protect the method of manufacture). If Pfizer can overcome this challenge, its rock-solid financials should prime the stock for a comeback. -- Corey Hajim