Pfizer Inc. (NYSE:PFE) is the one healthcare stock I'd add to my portfolio in January. Why? The company's turning the corner back toward growth, its R&D team is delivering important wins, its dividend is growing, and the company's getting a windfall thanks to the recently passed Tax and Jobs Act of 2017. Overall, I believe a very good argument can be made for including Pfizer in growth, value, and income portfolios sooner rather than later.

A return to growth

Lipitor's loss of patent protection in 2011 was a big blow. The cholesterol drug has seen its sales slip from $13 billion to around $2 billion over the past decade, and that decline has more than offset any revenue growth that's come from label expansions and new drug launches. 

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However, Pfizer appears to be finally overcoming Lipitor's headwind and turning back toward growth. It expects to report full-year sales of between $52.4 billion and $53.1 billion and adjusted earnings per share of at least $2.58 this year. If the company delivers on the high end of its forecast, then sales will eclipse revenue of $52.8 billion last year and profit will handily outpace EPS of $2.40 in 2016.

Profit should improve further in 2018, as accelerating sales get leveraged against the company's post-Lipitor cost-cutting and restructuring initiatives.

R&D investments are panning out

Pfizer spends over $7 billion annually on R&D, and it's already benefiting from programs that have expanded the addressable market for some of its best-selling drugs. For example, Ibrance, Eliquis, and Xeljanz are among the company's most important products, and each of them is a billion-dollar blockbuster that's growing in excess of 30% year over year.

Going into 2018, recent FDA approvals and pipeline data should support Pfizer's momentum.

In November, Pfizer won FDA approval to market its blockbuster kidney cancer drug Sutent as an adjuvant therapy that can prevent disease progression. That approval could offset the risk of competition from Exelixis (NASDAQ:EXEL) in first-line advanced kidney cancer next year. It also secured FDA approval recently for a new diabetes drug, Steglujan, that it co-developed with Merck & Co. (NYSE:MRK), and it won an approval of Bosulif in newly diagnosed patients with a mutation-specific type of leukemia in December, too.

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An FDA application for approval of lorlatinib, a next-generation ALK-inhibitor, in metastatic non-small-cell lung cancer is expected soon, and after reporting positive phase 3 data, Pfizer plans to discuss its options with the FDA for talazoparib, a promising breast cancer drug. In addition, the FDA is reviewing an application to expand Xeljanz's use to include ulcerative colitis, a blockbuster indication, and a decision is anticipated in June 2018. 

The company's also making a big push into immuno-oncology, which is arguably the most exciting area of drug development right now. The company's conducting 30 immuno-oncology studies, including nine pivotal trials. Data from eight of its pivotal studies should be available in the coming year, including results from studies targeting third-line gastric cancer, second-line lung cancer, and second-line ovarian cancer.

Overall, Pfizer's management thinks it could win 25 to 30 approvals over the next five years, including 15 billion-dollar blockbuster approvals across cancer, immunology, and rare disease.

Increasingly shareholder-friendly

Pfizer's returning money to investors through dividends and buybacks, and thanks to its improving financials, asset sales, and tax reform, more money could be on its way to investors.

In December, Pfizer increased its dividend 6.3% to $0.34 per share, giving it a forward dividend yield of 3.66%. It also added $10 billion to its existing $6.4 billion buyback program.

In 2018, Pfizer says it will decide whether to sell its consumer segment, a business that industry watchers think could fetch more than $10 billion. If it sells that business, proceeds from the transaction and tailwinds from tax reform should give it even greater financial flexibility.

Pfizer's CEO, Ian Reed, advocated this year for the U.S. to switch to a territorial tax system from a worldwide tax system, and sure enough, he got what he wanted. The company does a lot of business overseas -- it's accumulated $160 billion in profit and earnings outside the United States over the years -- so shifting to a system that mostly doesn't tax foreign income is a boon. Pfizer can repatriate deferred foreign profit at a 15.5% tax rate for cash and cash-equivalent profits and an 8% tax rate for reinvested foreign earnings because of tax reform. A drop in the U.S. corporate tax rate from 35% to 21% is profit-friendly to the company, too.

There's a good chance we'll get some insight into how Reed plans to make the most from tax reform in January. I expect M&A will be a part of that discussion now that tax reform is resolved.

Overall, the potential for profit and sales growth to climb in 2018 makes it a top stock to buy in healthcare, so if I could only buy one healthcare stock next month, it would be Pfizer.

 

Todd Campbell owns shares of Pfizer. His clients may have positions in the companies mentioned. 
The Motley Fool owns shares of and recommends Exelixis. The Motley Fool has a disclosure policy.