Healthcare isn't the hottest sector these days. While the S&P 500 has soared nearly 21% over the last 12 months, healthcare stocks as a group are barely in positive territory.
However, I remain convinced that investors can find great stocks to buy in the healthcare sector. One in particular stands out to me: Vertex Pharmaceuticals (NASDAQ: VRTX). Here are five reasons why Vertex is the ultimate healthcare stock to buy with $500 right now.
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1. A legal monopoly
Importantly, Vertex can bank on generating strong revenue and profits. Why? The company enjoys a legal monopoly. Only five drugs have been approved by the U.S. Food and Drug Administration (FDA) to treat the underlying cause of the rare genetic disease cystic fibrosis (CF). Vertex markets all of them.
The closest rival therapies to Vertex's drugs that use the same approach to treat CF (restoring CFTR proteins) are in phase 1 testing. Three other companies are evaluating gene therapies targeting CF in phase 2 clinical studies. Even if these potential competitors are successful (and that's no slam dunk), they're at best years away from presenting a threat to Vertex.
2. Three new potential blockbusters on the market
While Vertex has been highly successful, the big biotech company hasn't rested on its laurels. It now has three new potential blockbuster drugs on the market.
Casgevy won FDA approvals in December 2023 and January 2024 for treating sickle cell disease and transfusion-dependent beta-thalassemia, respectively. Vertex teamed up with CRISPR Therapeutics (NASDAQ: CRSP) on the powerful gene-editing therapy that effectively cures both rare blood disorders. The commercial ramp-up for Casgevy is taking some time because of the complexities involved with administering the therapy. However, Vertex thinks the drug has a "multibillion-dollar opportunity."
Vertex further cemented its leadership position in CF with the FDA approval of Alyftrek in December 2024. The company believes the therapy could become the new standard of care in CF treatment. That's encouraging, considering that Vertex's current top-selling CF drug Trikafta/Kaftrio raked in revenue of $10.2 billion last year.
Adding to the excitement, the FDA approved Vertex's acute pain drug Journavx (suzetrigine) roughly two weeks ago. Journavx has received massive media coverage (overwhelmingly positive, by the way) as the first non-opiod pain therapy in over two decades.
3. A powerhouse pipeline
More big winners could be on the way thanks to Vertex's powerhouse pipeline. The company has four late-stage programs, all of which appear to be highly promising.
Vertex is evaluating suzetrigine in treating diabetic peripheral neuropathy, which affects over 10 million patients. Its pipeline features two experimental drugs in pivotal testing that target kidney diseases -- inaxaplin for APOL1-mediated kidney disease and povetacicept for IgA neophropathy.
Perhaps the biggest game-changer, though, is zimislecel. This cell therapy is a potential cure for patients with severe type 1 diabetes. Vertex also has a follow-up therapy in clinical development, VX-264, that could provide a cure for the broader population of around 3.8 million people with type 1 diabetes.
4. Plenty of money to invest in growth
Vertex won't have any problems investing in further research and development and business development deals to drive future growth. The company ended 2024 with a cash stockpile (including cash, cash equivalents, and marketable securities) of $11.2 billion.
5. A reasonable valuation
Last, but certainly not least, Vertex is reasonably valued. That might not appear to be the case at first glance with the biotech stock trading at 25.5 times forward earnings. However, it's important to look further into the future with a fast-growing company like Vertex. The company's price-to-earnings-to-growth (PEG) ratio, which is based on five-year growth projections, is 1.23.
Importantly, this PEG ratio doesn't include the potential impact of Vertex's pipeline candidates in phase 1 and 2 studies, notably including VX-264. I think factoring in these experimental therapies makes Vertex an even more attractive pick.
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Keith Speights has positions in Vertex Pharmaceuticals. The Motley Fool has positions in and recommends CRISPR Therapeutics and Vertex Pharmaceuticals. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
