What's the single best stock to buy right now? Ask five different investors and you'll probably get five different answers.
The problem, of course, is that defining what makes a given candidate the best is highly subjective. Different people will often pick different stocks because their criteria are different.
I think there's one stock that especially stands out as the best stock to buy right now. Here are five arguments for why Vertex Pharmaceuticals (VRTX 3.07%) deserves the honor.
1. A super-strong financial position
Vertex is fresh on my mind because it just reported great second-quarter results. And those results underscore the big biotech's super-strong financial position -- an important criterion to qualify as the best stock, in my view.
The company's Q2 revenue jumped 14% year over year to nearly $2.5 billion. Profits rose 13% to $915.7 million. Vertex's net profit margin of close to 37% makes it one of the most profitable drugmakers on the planet.
As of June 30, 2023, Vertex's cash position stood at $12.6 billion. Few biopharmaceuticals have that big of a war chest.
2. A formidable moat
There are other stocks with even stronger financial positions than Vertex. However, the company claims a formidable moat that I believe is virtually unmatched.
Only four drugs are approved to treat the underlying cause of cystic fibrosis (CF), a rare genetic disease that damages the lungs and other organs. Vertex markets all of them.
The closest potential rival, Eloxx Pharmaceuticals, is at best years away from even having a chance to compete against Vertex. Another former contender, AbbVie, abandoned its CF program earlier this year.
Vertex doesn't have much to worry about on the intellectual property front, either. The patents for the company's top-selling CF therapy, Trikafta/Kaftrio, don't expire until 2037.
3. Exceptional growth prospects
Those first two arguments wouldn't matter very much if Vertex didn't have exceptional growth prospects. But it does.
Vertex's current CF therapies still have opportunities for sales growth by winning approvals for younger age groups and securing additional reimbursement deals around the world. More importantly, the company expects to announce results from late-stage studies of the vanzacaftor triple combo, its most powerful CF therapy yet, in early 2024. Even better, the combo will have significantly lower royalties than Vertex's previous CF therapies and could therefore be its most profitable CF therapy, if approved.
The U.S. Food and Drug Administration (FDA) has set a Prescription Drug User Fee Act (PDUFA) date of Dec. 8, 2023 to make a decision on approval of exa-cel in treating sickle cell disease. Another approval decision for the therapy in treating transfusion-dependent beta-thalassemia is scheduled for March 30, 2024. Exa-cel should have tremendous commercial potential as a functional cure for both diseases.
Vertex expects to announce results from a late-stage study of VX-548 in treating acute pain by early 2024. The company is already laying the groundwork for launching the non-opioid therapy in a multibillion-dollar market.
In addition, Vertex's pipeline features clinical programs targeting two other rare genetic diseases: APOL1-mediated kidney disease and alpha-1 antitrypsin deficiency. The company is also advancing therapies that hold the potential to cure type 1 diabetes.
4. A compelling valuation
You might not think Vertex's valuation is anything to get excited about, based on its forward earnings multiple of 24.8x. However, that metric doesn't fully reflect the biotech's growth prospects.
The price-to-earnings-to-growth (PEG) ratio, on the other hand, factors in expected growth over the next five years. Vertex's PEG ratio of 0.56 shows just how compelling its valuation is right now. Any PEG ratio below 1 is considered to be attractive.
5. Remarkable resilience
Vertex stock has risen more than 20% year to date in a favorable environment for stocks. But shares of the biotech also soared more than 30% last year when the overall stock market tanked.
Few stocks can perform well in both up and down markets. However, Vertex is remarkably resilient, in large part because of the nature of its business. Physicians continue to prescribe the company's CF therapies, and patients keep taking those medications regardless of what's happening with the economy or stock market.
The best?
Other investors will no doubt have their own picks for the single best stock to buy right now. And there are plenty of other great stocks out there.
But is there a stock that has a stronger financial position, a more formidable moat, greater growth prospects, a more attractive valuation, and is more resilient than Vertex? I don't think so.
