What sorts of stocks will do well in the coming year? Right now, it's clear that the coronavirus pandemic is continuing. And that limits our visibility. If the health situation worsens, stay-at-home stocks and companies making coronavirus-related products may perform well in the months ahead. If the crisis eases, travel-related and entertainment stocks could start to climb.
In this environment, the best strategy is diversification -- and not just across industries. It's important to look at each individual company's business and how news and external factors may affect its performance in 2021. Here, I'll talk about three that, together, offer a solid way to manage risk in the new year.
Image source: Getty Images.
1. Vertex
Vertex Pharmaceuticals (VRTX 1.91%) is down over 20% from an all-time high reached in July. Investors sanctioned the stock after the company discontinued a phase 2 study for an alpha-1 antitrypsin deficiency (AATD) therapy. But we shouldn't be discouraged. As Vertex said on its earnings call, part of the company's strategy is to advance several molecules into early clinical studies, then only move forward with the strongest. In this case, Vertex is continuing a phase 2 study of another AATD therapy. It expects to report data in the first half of 2021.
Most recently, Vertex and partner CRISPR Therapeutics (CRSP +1.43%) earned a victory in the development of their gene-editing program for blood disorders. All seven transfusion-dependent beta thalassemia patients were transfusion independent after three to 18 months of follow-up. And all three sickle cell disease patients were free of acute pain crises within three to 15 months of follow-up.
These are programs that could add to future revenue. For now, though, investors can count on Vertex's leadership in the cystic fibrosis (CF) market. So far, it's driven five years of annual revenue increases. Last year's launch of Trikafta -- a drug that could eventually treat 90% of all CF patients -- will accelerate that trend. In the most recent quarter, product revenue soared 62% to $1.54 billion. Vertex predicts CF leadership until at least the late 2030s. This should translate into steady share gains for the long-term investor.
2. Disney
The coronavirus hurt Disney's (DIS +0.05%) biggest revenue source: Its parks, experiences, and products business. That segment accounted for about 38% of Disney's revenue last year. With some parks closed and others forced to limit numbers of visitors, and cruises on hold, the business segment reported a 61% decline in revenue in the most recent quarter. We can expect a rebound in this segment once the coronavirus crisis eases -- and this should drive Disney shares higher.
But something else is boosting Disney shares now -- and probably will continue to do so even as the health crisis continues. And that's the company's streaming services. Because people around the world are staying home more than usual, demand for at-home entertainment is high. And that's showing in Disney+, Hulu, and ESPN+ streaming subscriptions.
In a 2019 investor update, the company forecast subscriber levels for the 2024 fiscal year. Disney expected between 60 million and 90 million Disney+ subscribers, between 40 million and 60 million Hulu subscribers, and between 8 million and 12 million ESPN+ subscribers by FY 2024. All three services are already well on their way to beating expectations. As of this month, Disney+ subscribers totaled 86.8 million, Hulu subscribers had reached 38.8 million, and ESPN+ had 11.5 million subscribers. Streaming services contributed to the 41% revenue increase in the direct-to-consumer and international business in the most recent quarter.
Disney shares have gained 18% this year. In 2021, recovery in the parks segment or continued strength in streaming may put more magic into Disney stock.
3. Abbott
President-elect Joe Biden plans to expand coronavirus testing in the U.S. And that's good news for testing leader Abbott Laboratories (ABT +0.46%). The U.S. Food and Drug Administration (FDA) has already granted eight of Abbott's coronavirus tests Emergency Use Authorization (EUA).
The latest, just this month, is Abbott's BinaxNOW rapid test for at-home use. In August, the FDA authorized a version of the test for use in healthcare settings. Abbott reported $881 million in coronavirus-related testing revenue in the quarter ending Sept. 30. But that didn't include much from the newly authorized BinaxNOW.
In the coming quarters, BinaxNOW revenue could be significant, especially with the new at-home indication. Abbott's test is used with eMed's online service to guide users through the testing process. The companies plan on delivering 30 million at-home tests in the first quarter and 90 million in the second. At a price of $25 per test, that represents $3 billion.
Soon after the initial EUA in August, Abbott started producing 50 million BinaxNOW tests per month. Abbott sells the test to professionals for $5.
Abbott's annual revenue has been on the rise since 2017, and annual profit has gained for the past two years. Beyond coronavirus testing, the company generates revenue from other diagnostic tests, medical devices, nutrition products, and pharmaceuticals. That means it has plenty of growth drivers -- during the health crisis and beyond.
