When the S&P 500 lost 4.3% in two days last week, some of our bull market enthusiasm may have faded. And many of us were probably thinking back to the March market crash. Are we prepared for the next one? It may not be right around the corner, but it's never too early to prepare for opportunistic buying. Interesting entry points for some stocks might arise in the coming weeks: We could see volatility in the market as the coronavirus pandemic continues and as the presidential election looms ahead.
If you have $5,000 set aside to invest, now is the time to pack your portfolio with solid companies before the market starts tumbling again. I favor buying healthcare shares that have sustained revenue and are market leaders. These players are more likely to be resilient in times of trouble and recover more quickly afterward. Here are three that fit the bill.
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1. Exelixis
Annual revenue has been climbing since 2016 at Exelixis (EXEL 0.13%) thanks to lead drug, Cabometyx. The drug is approved for advanced renal cell carcinoma (RCC) and hepatocellular carcinoma -- two types of cancer. Cabometyx is the No. 1 prescribed single-agent tyrosine kinase inhibitor for RCC patients. Last month, Exelixis submitted Cabometyx for regulatory approval in combination with Bristol Myers Squibb's (BMY 1.30%) Opdivo, also for patients with RCC. The drug combination met its primary endpoint in a phase 3 trial.
But that's not all. The company recently began three phase 3 trials of cabozantinib, the molecule in Cabometyx, as a combination treatment to broaden its reach in oncology indications. Exelixis already has more than 70 ongoing trials involving cabozantinib for treatment of gynecologic, thyroid, and other cancers.
Exelixis has surpassed analysts' earnings estimates in the past four quarters, though revenue fell in the second quarter due to impact from the coronavirus outbreak. Exelixis said wholesalers and end customers built inventory in the first quarter. And new patient starts declined. Both trends have since reversed. We can expect sales growth to return once the health crisis subsides. Exelixis hasn't changed its forecast for $725 million to $775 million in product revenues for the year.
2. Vertex
Vertex Pharmaceuticals' (VRTX 0.20%) annual revenue has gained for the past five years. The biotech company has four cystic fibrosis (CF) treatments on the market -- and the latest is on the road to becoming a blockbuster. That's because Trikafta, approved in the U.S. last October, has the potential to treat up to 90% of CF patients. Last month, the European Commission approved the drug under the name Kaftrio.
Now, Vertex is hoping to expand the use of Trikafta and two of its other CF drugs -- Symdeko and Kalydeco -- even further. The company recently asked the U.S. Food and Drug Administration (FDA) to approve a label expansion allowing the drugs to be used for patients with additional CFTR gene mutations. These mutations result in a faulty or missing CFTR protein, causing the disease. A possible approval here could result in more than 1,700 new patients for these drugs. Vertex is "the most prominent" company in the CF market, according to a Market Research Future report published prior to Trikafta's initial regulatory approval.
Morningstar predicts double-digit growth for the CF portfolio for the next few years thanks to Trikafta and expects these treatments to reach $10 billion in sales in 2024. That's up from revenue of $4 billion last year. Trikafta, in its first full quarter on the market, generated sales of $895 million. And in the most recent quarter the drug brought in $918 million in revenue.
3. Illumina
Illumina (ILMN 0.63%) is a genome-sequencing giant. The company holds more than 70% share of the sequencing market, and its tools have generated more than 90% of sequencing data globally, according to Morningstar. As a result, annual revenue has been increasing for more than a decade.
This year may represent a pause in Illumina's sales momentum, however. The coronavirus outbreak meant hospitals and clinics turned their attention to the crisis and postponed other procedures such as genetic screening. And many research clients temporarily closed their doors or reduced operations during the second quarter, Illumina said. The shutdown of labs limited the use of sequencing consumables. Consumables, which include items like test kits, account for most of Illumina's revenue. In the quarter, Illumina reported a 25% drop in revenue.
But good news is on the horizon for the company and for investors. Illumina has started to see recovery in consumables as researchers return to work. And the company expects the second quarter to represent this year's revenue low point. Illumina predicts revenue to increase sequentially in the last two quarters. Still, this year surely won't be Illumina's best. But I see this situation as temporary and I expect Illumina's pre-coronavirus growth to continue as its clients return to business as usual.
