Investors were taken on the ride of their lives in 2020. After getting pummeled in the first quarter, the broader market proved unstoppable in the nine months to end the year. This was especially true of the technology-heavy and growth-focused Nasdaq 100.
When the curtain closed, the market cap-weighted Nasdaq 100 ended the year higher by nearly 48%. That's triple the return of the benchmark S&P 500 in 2020 and almost six times the gain posted by the iconic Dow Jones Industrial Average.
What you might be surprised to learn is that there's still some serious value hiding in plain sight. The following three Nasdaq 100 stocks all have the potential to make you a boatload of money in 2021, and beyond.
By all accounts, specialty drug stock Vertex Pharmaceuticals (VRTX 0.06%) had a down year. Despite finishing higher by almost 8%, the company closed the latter half of 2020 by losing almost a fifth of its value. This stemmed from a pipeline update in October that saw the company discontinue phase 2 studies of promising alpha-1 antitrypsin deficiency (AATD) drug VX-814 after elevated liver enzyme levels were seen in some trial participants. While it was unfortunate to see one of Vertex's promising pipeline products fail, it's the nature of the drug-development process and in no way tarnishes Vertex's history of success on the development front.
The biggest differentiating factor for Vertex is the company's overwhelming success in helping patients with cystic fibrosis (CF). CF is a genetic disease characterized by thick mucus production that can obstruct the pancreas and lungs. There currently is no cure.
Vertex has developed multiple generations of gene-specific treatments for CF patients. The latest, Trikafta, was approved five months ahead of schedule after the drug improved predicted forced expiratory volume in one second by 3.7 percentage points in trial participants. As the most-effective treatment option for the most common mutation of CF (F508del), Trikafta looks to be well on its way to eventually surpassing $6 billion in annual sales.
Beyond the failed VX-814, Vertex has a half-dozen other experimental therapies in clinical trials, and a number of other preclinical programs under way. CTX001 as a treatment for sickle cell disease and beta thalassemia, along with VX-864 as a treatment for AATD, are among the most promising.
It'd be great if Vertex's revenue stream were less reliant on CF, but it's a mistake to discount the company's stock just because of its overwhelming success in a single indication. Look for Vertex to bounce back in 2021 and make shareholders a boatload of money.
Another healthcare stock that should continue to shine in 2021 is medical-device maker DexCom (DXCM -0.91%). Unlike Vertex, DexCom powered higher by 69% last year. However, it's retraced by 18% since hitting an all-time closing high in early August.
What makes DexCom such an intriguing company is its focus on helping patients with diabetes. DexCom develops continuous glucose monitoring (CGM) systems. A CGM system can help diabetics take better control of their glycemic balance, while reducing or eliminating the need for repeated finger-prick tests. A patients' real-time blood glucose reading can be displayed wirelessly on a host of devices (smartphone, smartwatch, or a DexCom wireless display), and in select instances DexCom's devices can be linked to an insulin pump.
Just as important, DexCom's CGMs come with its Clarity software. Clarity allows patients to easily aggregate their blood glucose readings in digital reports, which can then be sent to a primary physician or specialist. The value of Clarity has been especially notable during the coronavirus pandemic, where at-risk patients, such as diabetics, are purposefully avoiding office visits.
DexCom can also benefit from the sheer size of the U.S. diabetes market. According to the Centers for Disease Control and Prevention, more than 34 million people have diabetes today (75% of which know they have the disease), and another 88 million Americans are exhibiting the symptoms of prediabetes. The company's potential pool of patients continues to climb, which is why a 20% growth rate is perfectly sustainable.
Just because Facebook (META -0.64%) is a $778 billion company doesn't mean that it's exceptional growth potential is now in the past.
Let's start with the basics: Facebook is the go-to for social media advertising. At the end of September, Facebook had 2.74 billion monthly active users, along with 3.21 billion monthly family active people. This family figure includes owned platforms WhatsApp and Instagram. Advertisers fully understand that there isn't anywhere they can go to reach such a huge targeted audience. This means exceptional ad-pricing power for Facebook, year in and year out.
Something else that often gets overlooked with Facebook is that the company is nowhere near done monetizing its assets. While it's been generating plenty of ad revenue from Facebook and Instagram, WhatsApp and Facebook Messenger haven't been monetized in a meaningful way. Facebook owns four of the six most-visited social platforms in the world, yet it's only generating meaningful revenue from two of them. When the company does monetize WhatsApp and Facebook Messenger, expect sales growth and operating cash flow to pick up big-time.
Facebook also has innovation potential that extends beyond advertising. For instance, it'll be launching its own cryptocurrency (Libra) sometimes this year, which may help drum up interest for Facebook Pay. I believe some sort of streaming service could lie in its future, as well.
Based on its operating cash flow, Facebook looks to be about as cheap as it's ever been. This suggests substantial upside is still to come.