Inflation may peak, while growth is certainly slowing. These conditions are harsh for most stocks, but pharmaceuticals are an exception. One of the leading companies in the space is Vertex Pharmaceuticals (VRTX). Read on to find out why our stock is growing this week.
2022 has been a brutal year for the stock market with the S&P 500 down 19.6%. The main impetus for this weakness was inflation and rising Fed rates.
In contrast, earnings have continued to rise as we had 7% earnings growth for the S&P 500 with another 4% forecast in the second quarter. Despite inflation and changes in economic and monetary conditions, analysts continue to forecast profit margins above 12%. With long-term rate highs and long-term inflation expectations falling, the next catalyst for a market crash should be a decline in earnings.
While this would lead to a weakness in many parts of the market that performed better than 2022, such as energy, materials and industrial sectors, it would likely be positive for pharmaceutical stocks. The income of these companies is not affected by changes in economic or monetary conditions. In addition, a significant drop in earnings would likely cause the Fed to start cutting, which would increase pharmaceutical stocks with high growth rates.
Vertex Pharmaceuticals (VRTX) is a high quality company with attractive valuation and strong long-term growth prospects. Read on to find out why our stock is growing this week …
VRTX discovers and develops small molecule drugs for the treatment of serious diseases. Its key drugs are Kalydeco, Orkambi, Symdeko and Trikafta for cystic fibrosis, where Vertex therapies remain the global standard of care. The company also focuses on developing treatments for pain, type 1 diabetes, inflammatory diseases, the flu and other rare diseases.
The company’s cystic fibrosis drugs are poised to continue to dominate the market in the foreseeable future due to the disease-modifying potential of the drugs, constant patient use, and low competition. VRTX combination therapies also have long patents, which protect their cystic fibrosis portfolio from generics. There is also potential for its channeling of non-cystic fibrosis, which has exposure to promising areas such as AAT deficiency, sickle cell disease, and beta-thalassemia.
As mentioned above, the growth prospects of most companies will deteriorate with the economy. This is not the case for pharmaceutical companies like VRTX. This is because health spending is related to trends such as demographics and rising government spending on health.
In particular, VRTX is the only pharmaceutical company with a treatment for cystic fibrosis. And, this should continue to grow at a healthy pace as it gains approval in new markets and for younger ages. The company’s pipeline is also well stocked with candidates for diabetes, including a treatment that would replace pancreatic cells that have just yielded promising results in clinical trials.
Despite this impressive growth, VRTX is quite cheap with an advanced P / E of 18, which is slightly higher than the advanced P / E of the S&P 500. However, this is justified given that VRTX has much less risk of declining earnings at due to its presence in the healthcare sector and its strong product portfolio.
The company also stands out with its 30% profit margins, which are 2.5 times the 12.2% profit margins of the S&P 500. In addition, VRTX has more pricing power and is less subject to pressure. inflationists that some expect to cause some margin squeeze for many stocks.
VRTX has an overall rating of A that equates to a strong purchase rating on the POWR ratings service. A-rated equities posted an average annual return of 31.1%, which compares favorably with the average annual S&P 500 gain of 8.0%.
VRTX also has solid component ratings, including an A for quality due to the fact that 11 of the 19 analysts covering the shares have a strong buy rating and only 2 have a sell rating. It is also considered one of the best companies in the space due to its dominance of the CF market and a strong portfolio of potential and highly successful treatments. Click here to see more of VRTX’s POWR ratings.
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VRTX shares. To date, VRTX has gained 25.76%, compared to a -19.26% increase in the S&P 500 benchmark during the same period.
About the author: Jaimini Desai
Jaimini Desai has been a writer and financial reporter for almost a decade. Its goal is to help readers identify risks and opportunities in the markets. He is the chief growth strategist at StockNews.com and the publisher of the POWR Growth and POWR Stocks Under $ 10 newsletters. Learn more about Jaimini’s background, along with links to his most recent articles.
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