Daily Stock Pick: August 15th, 2022

Stocks edged lower this morning as investors braced for earnings from major retailers Target, Ross Stores, Home Depot, and Lowe’s. Wall Street will look for clues about inflation’s effect on the businesses in the second quarter.  

The bulls have had a good run over the past month with support from economic data, which suggests inflation is cooling down. As of Friday’s close, the S&P 500 was up 17% from mid-June lows. Some investors have been eager to call the June low a bottom, but many Wall Street pros have been echoing a reminder that one month’s data doesn’t make it a reliable trend. 

“The strength of the summer rally has caused some momentum-based indicators to suggest the worst of the bear market is over, but the macro backdrop of yield curve inversions, real liquidity, and further Fed rate hikes argues the opposite,” said Canaccord Genuity analyst Tony Dwyer said in a note to clients this morning.  

Regardless of what’s happening elsewhere in the market, biopharma is a great place to look for stocks to pack into your portfolio because there’s always an illness that can be treated more effectively in the future than it is being treated today. 

Our trade alert features an established drug maker with an excellent approval history. Their treatments have been widely trusted for years, and currently, they have multiple promising projects in the pipeline. 

Vertex Pharmaceuticals (VRTX) is the undisputed leader when it comes to cystic fibrosis therapies. The company’s portfolio of approved CF drugs will deliver at least an estimated $8.4 billion this year, made possible by intense market penetration and decades-long devotion to research and development in the space. 

So far, the company has been highly accountable, proving to regulators that its products are effective and safe for broader and wider populations of patients. It has also managed to remain enormously profitable and continued to expand revenue within the CF market at a steady pace.

Suppose management’s plans for expanded approvals for younger age cohorts continue to come to fruition over the next few years. In that case, Vertex will eventually treat as many as 90% of all people with CF. That means investors can look forward to a steadily increasing flow of new revenue and expanded approvals, both of which should support the stock’s price significantly.   

Furthermore, the company is moving its pipeline beyond CF with a handful of mid-stage clinical programs for pain relief, kidney disease, and genetic hematologic disorders like sickle cell disease. In other words, even if it eventually corners the entire CF therapy market, there will still be other growth opportunities.  

Of 26 analysts offering recommendations for VRTX, 18 give the stocks a Buy rating, and 9 rate it a Hold. There are no Sell ratings. It seems likely that Vertex will reward patient investors as the steadily growing biopharma company seems ripe for expansion for years to come.  

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