Star fund manager Neil Woodford is known for two things, his long-term performance record, and high conviction stock holdings. Unlike most fund managers, who generally own a well-diversified portfolio with each position totalling no more than 1% or 2% of overall portfolio, Woodford is unafraid to devote 5% or more of the portfolio to the stocks he believes in. 

And at the time of writing his highest conviction holding, amounting to 7.9% of the assets of the CF Woodford Equity Income Fund, is AstraZeneca (LSE: AZN)

A breakout year  

Woodford’s high allocation to Astra suggests he expects big things from the company in 2017 and he could be on to something. 

Over the past 12 months, shares in Astra have been on a wild ride. From a high of 5,220p to a low of 3,774p, investors’ opinions of the company has flipped from bullish to bearish and then back to bullish. But 2017 could be a transformational year for Astra as the company completes and publishes the results of several key studies for cancer drugs in the ground-breaking area of immuno-oncology. 

Going all-in on this field has been a gamble for Astra but it’s one that could yield tremendous results if the treatments prove to be effective. 

There’s a lot to play for here. The sales of Astra’s legacy products are falling as generic competitors take market share from the group and overall group sales are falling as a result. These declines are by no means terminal but without any pipeline catalyst, shares in Astra are likely to languish for some time. 

It seems as if City analysts are erring on the side of caution by not predicting that new immuno-oncology drugs will catapult earnings higher. Analysts are expecting the company’s earnings per share to fall by 2% this year and then a further 9% during 2017 as revenue declines from £18.3bn to £17.5bn. 

Undervalued? 

Shares in Astra look relatively cheap considering the company’s defensive nature and cancer treatment potential. At the time of writing the shares trade at a forward P/E of 14.5 based on 2017’s estimated full-year earnings. The shares also support a dividend yield of 5%, and the payout is covered one-and-a-half times by earnings per share. 

Woodford clearly likes Astra but why shouldn’t he? The company’s shares are cheap and its pipeline has tremendous potential, something it seems the market is missing. If the results from the immuno-oncology trials meet or beat expectations, then 2017 could be the year the shares spring into action and outperform the FTSE 100. On the other hand, if the trials don’t yield the desired results, the shares may be in for another rocky year of trading. 

The risks are high, but early clinical trials have shown encouraging results, so it would appear that Woodford is betting that the treatments really do have what it takes to wake up Astra’s shares. 

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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has recommended AstraZeneca. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.