For the past 12 years, growth stocks have been put on a pedestal on Wall Street — and with good reason. Historically low lending rates and the Federal Reserve’s ongoing quantitative easing measures have made capital exceptionally cheap to borrow. For fast-paced companies, borrowing has fueled innovation, acquisitions, and hiring.
This outperformance has been particularly noticeable for the Nasdaq 100 — an index comprised of 100 of the largest nonfinancial companies listed on the Nasdaq exchange. Whereas the benchmark S&P 500 has gained an impressive 233% over the trailing 10-year period, through July 14, the Nasdaq 100 has more than doubled it up with a gain of 536% over the same time frame.
Despite its significant outperformance of the broader market, investors can still find incredible values hidden in plain sight within the Nasdaq 100. For example, the following trio of Nasdaq 100 stocks can be confidently bought hand over fist in July.
If you’re wondering how a highly successful and profitable biotech stock like Vertex Pharmaceuticals (NASDAQ:VRTX) makes it onto this list, look no further than two overreactions to experimental drug candidates to treat alpha-1 antitrypsin deficiency (AATD). In mid-October 2020, the company announced that VX-814 was being discontinued in phase 2 trials for patients with AATD after leading to elevated liver enzymes in select participants. This was followed in June by the discontinuation of VX-864, which provided a proof of mechanism in a phase 2 study, but was unlikely to provide a “substantial clinical benefit” if examined in a phase 3 study.
While this might sound like bad news, it’s simply a speed bump for a company that’s demonstrated time and again that it can tackle tough-to-treat diseases. In particular, Vertex is a superstar when it comes to treating cystic fibrosis (CF), a genetic disorder characterized by thick mucus production that can obstruct the pancreas and lungs. Vertex has developed four generations of treatments to improve lung function for patients dealing with CF.
Just how good has Vertex’s CF pipeline been? The company’s latest combination therapy, Trikafta, was approved by the Food and Drug Administration five months ahead of its scheduled review date. It raked in almost $3.9 billion in its first year on pharmacy shelves, primarily because it targets the F508del mutation, allowing it to target around 90% of all CF patients.
If you’re worried about revenue diversification beyond CF, don’t be. Even accounting for Vertex’s failures in AATD, it has nine other therapies in internal or outsourced clinical trials, along with a plethora of preclinical studies ongoing. That’s more than enough pitches for this company to hit another home run.
If you’re still not convinced, just take a closer look at its cash pile. Vertex ended March with $6.92 billion in cash and cash equivalents. That’s more than enough capital for the company to acquire late-stage assets, or perhaps other drug developers in entirety. A forward-year profit multiple of less than 17 is simply too inexpensive for a biotech stock capable of sustained double-digit sales growth.
Though it may get overshadowed by many of the other faster-growing Nasdaq 100 companies, satellite-radio operator Sirius XM (NASDAQ:SIRI) is the perfect blend of modest growth and value to add to your portfolio in July.
Let’s begin with the obvious: Sirius XM is a legal monopoly. Though it’s not devoid of competition, there aren’t any other satellite-radio operators. This affords Sirius XM a handful of clear-cut competitive advantages that should allow the company to steadily grow its top and bottom line.
As an example, Sirius XM’s revenue pie differs pretty dramatically from what you’ll see via terrestrial radio operators and streaming radio services. The latter are almost exclusively reliant on advertising revenue, which isn’t a bad thing when the U.S. economy is expanding. The problem is that recessions and contractions are an inevitable part of the economic cycle. When recessions do arise, ad revenue dries up quickly, threatening the terrestrial and streaming operating model.
Comparatively, Sirius XM generates the bulk of its revenue from recurring subscriptions to its satellite-radio service. During the first quarter, just over 78% of its $2.06 billion in revenue derived from subscriptions. That’s important, because subscribers are far less likely to cancel during an economic downturn. In fact, Sirius XM saw its subscriber revenue jump during the pandemic-impacted 2020.
Another key advantage for SiriusXM is its satellite network. A number of expenses, such as transmission and cost of equipment, are relatively fixed from one year to the next. Put in a different context, no matter how many new subscribers SiriusXM adds, the costs to transmit service to these folks won’t increase. That’s a formula for margin expansion over the long run.
As the icing on the cake, the auto industry’s transition to electric vehicles could create a multi-decade vehicle replacement cycle that allow Sirius XM to pick up millions of new subscribers annually.
A third Nasdaq 100 stock that can be bought hand over fist in July is Alphabet (NASDAQ:GOOGL)(NASDAQ:GOOG), the parent company of internet search engine Google and streaming platform YouTube, to name a few well-known assets.
As has been the theme with list, dominant companies tend to yield profitable outcomes for patient investors. When it comes to internet search, Google is a veritable monopoly. According to GlobalStats, Google controlled 92.5% of global search share in June 2021, with Microsoft‘s Bing the next-closest at a (drum roll) 2.3% worldwide share. With this sort of dominance, it’s no wonder Google possesses such incredible ad-pricing power on its search platform. If the U.S. and global economy are expanding, Google’s search engine can be counted on to deliver double-digit annual sales growth.
However, Alphabet’s future is about more than just ad revenue from internet search engines. YouTube has become one of the three most-visited social sites in the world. This helped YouTube bring in a cool $6 billion in ad revenue during the first quarter.
There’s also Google Cloud, which possesses the third-highest share of the global cloud infrastructure service market, based on Q1 spending, per Canalys. As more businesses shift their presence online and into the cloud, demand for the cloud services offered by Google Cloud will only grow. Plus, with cloud service margins being considerably higher than advertising margins, Cloud holds the ticket to potentially doubling Alphabet’s operating cash flow over the next four years.
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.