If I Could Only Buy and Hold a Single Stock, This Would Be It

Stock investors have many options to choose among, of course. These include individual equities, exchange-traded funds (ETFs), and mutual funds. But if I had to pick just one stock, I'd invest in Pfizer (NYSE: PFE).

The share price has gotten beaten up over the last few years. That may scare off some investors. However, the company has favorable attributes that put Pfizer's stock at the top of my list.

Here's why I believe so strongly in Pfizer's long-term prospects.

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Rebuilding the pipeline

Pfizer's COVID-19 vaccine drove a jump in revenue a few years ago. The company's 2022 top line reached $101.2 billion. But revenue subsequently dropped as demand for the vaccine waned for several reasons.

Third-quarter revenue, adjusted to exclude foreign-exchange translations, dropped 7% compared to a year ago. Management expects revenue of $61 billion to $64 billion for all of 2025. Pfizer produced revenue of $63.6 billion last year.

The next couple of years look challenging, too. Certain treatments will face increased competition due to patents expiring. Notably, Ibrance (an oncology drug) loses protection in 2027, Eliquis and Vyndaqel (both cardiovascular drugs) will no longer have patent protection in 2028.

However, management has been focused on rebuilding the pipeline internally and via acquisitions. Pfizer recently acquired Metsera, which is working on obesity treatments. This would allow the company to compete in the popular and lucrative space, should its drugs receive governmental approval. The potential treatments would have major advantages, such as oral drugs instead of shots and monthly doses, over existing treatments.

Getting paid to wait

While the company's revenue growth may not prove exciting for a while, Pfizer's shareholders can enjoy the 6.7% dividend yield. The high yield might give some investors pause, since that could indicate it's unsustainable. But management has remained committed to its dividend. More importantly, the company's earnings cover the payout.

Pfizer's management expects adjusted earnings per share of $3 to $3.15 this year. That easily covers the $1.72 in annual dividends. That works out to a 57% payout ratio, at the low end of management's earnings guidance.

An attractive valuation

Replacing revenue from COVID-19 vaccines and drugs with expiring patents remains challenging. However, pharmaceutical companies constantly have to deal with patent cliffs. I expect the company to rebuild the pipeline.

While you're collecting healthy dividends, you'll also benefit from the price-to-earnings (P/E) ratio expanding when revenue growth occurs. Along with the revenue drop, Pfizer's stock swooned. Over the past three years (through Dec. 12), the share price dropped 51.3%. The S&P 500, by contrast, gained 69.9% during this time.

That price drop has created an attractive valuation. Pfizer's shares currently trade at a P/E multiple of 15, lower than the 10-year median of 17. The stock also looks inexpensive when comparing it to the overall market, with the S&P 500 trading at a P/E ratio of 31.

Granted, there's some risk that Pfizer won't effectively rebuild its pipeline. That's why the shares trade at such an attractive level. But this isn't a unique challenge for Pfizer or the pharmaceuticals industry.

With the company's resources, track record of producing blockbuster drugs, and Metsera treatments, Pfizer's stock seems like a strong candidate to thrive if investors have the patience to wait for the company to rebuild the pipeline.

Lawrence Rothman, CFA has positions in Pfizer. The Motley Fool has positions in and recommends Pfizer. The Motley Fool has a disclosure policy.