It’s easy to get caught up in market volatility. And it’s normal to feel tempted to jump into trading by the wild swings in the prices of securities. But that can also be risky, because that strategy requires you to know with near certainty if and when a stock will go up or down in order to make money. A more secure (and in some opinions, easier) way to grow your capital over time is to sit back and do nothing — that is, after you have added shares of great companies to your portfolio.
Two excellent stocks worth buying right now are biotech giant Vertex Pharmaceuticals (NASDAQ:VRTX) and tech juggernaut Facebook (NASDAQ:FB). Both of these are growth stocks, meaning they are expected to grow their revenue or earnings at a faster rate than industry averages. I think that each has what it takes to beat the market in the long run.
1. Vertex Pharmaceuticals
In my view, Vertex is a great stock pick, for at least three reasons: its current lineup of products, its exciting pipeline, and its growing pile of cash. Vertex Pharma primarily markets products that treat the underlying causes of cystic fibrosis (CF), a rare disease that affects some 75,000 patients in North America, Europe, and Australia.
Vertex Pharma currently has no competitors in this market, and there are good reasons to think the company will be able to dominate this segment for at least another half a decade. Vertex Pharma’s earliest patent expiration will happen in 2025. The company’s most important product — Trikafta, which can treat 90% of CF patients — won’t see its patent expire until 2037.
And while other drugmakers are developing CF drugs, even if they are successful, Vertex Pharma’s established dominance in this space will be a powerful weapon in maintaining its lead against any would-be newcomers. Second, Vertex Pharma has several exciting pipeline programs. Most notably, the company is developing CTX001 for the treatment of sickle cell disease (SCD), a rare blood disorder for which there are few treatment options.
Vertex Pharma is working on this gene-editing treatment in collaboration with CRISPR Therapeutics. CTX001 has already shown promise in clinical trials. In a phase 1/2 clinical trial, an SCD patient treated with CTX001 did not experience any vaso-occlusive crises (VOC) — a common side effect of SCD characterized by acute pain — nine months after the treatment.
Prior to receiving this therapy, this patient experienced an average of seven such crises per year (on an annualized rate based on the two years prior to the patient receiving the treatment). These results are very encouraging, although there is still a long road ahead.
Third, Vertex Pharma’s free cash flow has increased by 4,420% in the past five years to roughly $3 billion. Vertex Pharma could use its growing stash of cash to pen new collaboration agreements with smaller biotechs with promising pipelines, or even acquire another company altogether.
That gives the biotech more options to ensure a financially lucrative future. Thanks to all these factors, Vertex Pharma looks poised to outpace the market moving forward.
Facebook has encountered its shares of troubles in recent years — the company’s stance on political advertisements and hate speech has its share of detractors, to say the least. Facebook’s image has taken a hit due to these (and other) issues, but the future of its core business looks bright nonetheless.
The tech giant benefits from a competitive advantage called the network effect. This means that the value of its service has increased as more people have started to use it. Facebook has more than 3 billion users across its suite of social media websites and apps, which includes its namesake website, Facebook Messenger, Instagram, and WhatsApp.
As of its 2020 fourth quarter that ended on Dec. 31, the company had 3.3 billion monthly active users, representing a 14% year-over-year increase. Companies looking to reach a large clientele with targeted ads will continue to flock to Facebook’s ecosystem, and the tech giant will attract even more advertisers as the number of users on its platform continues to grow.
Facebook also benefits from tremendous name recognition. Last year the company’s main website was the third most popular in the world by monthly visits, according to Statista. Instagram was in the top 10, while WhatsApp was in the top 20.
It seems likely that within the next five years, more than 50% of the world’s population will be visiting one of Facebook’s apps (or websites) at least once per month. Meanwhile, Facebook is still in the early innings of its efforts to monetize WhatsApp, meaning that along with the billions in revenue (and growing) it generates from ads on Facebook.com every year, the company is nowhere close to hitting a plateau.
Facebook brought in roughly $86 billion in revenue last year, which represented a 22% year-over-year increase. And according to Wall Street, the Silicon Valley tech company will grow its revenue at an average of 21.5% per year throughout the next five years. Increasing revenue and profits and a strong competitive advantage should help Facebook’s stock continue to deliver market-beating returns for the foreseeable future.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.