You won't find hotter stars in the investing universe so far this year than AMC Entertainment (AMC 0.93%) and Dogecoin (DOGE 0.18%). Retail investors have jumped aboard their bandwagons in force. AMC's shares have vaulted more than 2,300% higher year to date, while the price of Dogecoin has skyrocketed over 5,600%.
The big question for AMC and Dogecoin is whether or not their momentum is sustainable. There's considerable disagreement about the right answer to that question.
Probably the better question to ask, though, is whether or not there are other investment alternatives that provide better risk-reward propositions over the next 10 years or more. My view is that the answer to this question is a resounding "yes."
Move over AMC and Dogecoin: Here's a stock that could be a bigger long-term winner.
A big advantage for a big biotech
The stock I have in mind is none other than Vertex Pharmaceuticals (VRTX 2.86%). Granted, Vertex hasn't delivered anywhere close to the kinds of returns that AMC and Dogecoin have in recent months. It even just reported a setback for one of its pipeline candidates. However, this big biotech holds an advantage over both of them that should make a huge difference over the long run: Vertex enjoys a monopoly in its core market.
There are currently four approved drugs in the U.S. and Europe that treat the underlying cause of rare genetic disease cystic fibrosis (CF), and Vertex markets all of them. Its newest CF drug, Trikafta/Kaftrio, is its biggest winner yet. The drug is just beginning to pick up momentum in Europe.
What about potential rivals? Two other companies have clinical-stage candidates that target the underlying cause of CF. However, those experimental drugs are only in phase 2 testing, and there's no guarantee the candidates will be more effective than Vertex's products that are already on the market. Vertex seems likely to dominate the CF market, at least through the next decade.
Let's compare Vertex's monopoly to the competitive dynamics for AMC and Dogecoin. AMC isn't the only theater chain. Its top rivals include Cineplex, Cinemark, Marcus, and Regal Entertainment. Streaming services that allow people to watch new movies at home are also a competitive threat to AMC.
Dogecoin isn't the only cryptocurrency vying for investors' favor, either. There are other cryptocurrencies that seem even more likely to succeed over the next several years than Dogecoin.
The bottom line is that Vertex has a moat, while AMC and Dogecoin don't. Over the long run, moats matter.
Looking to the future
Dogecoin likely has a hit-or-miss future. It either will become a top cryptocurrency that enjoys enduring use or it will fade away.
On the other hand, AMC will probably experience a solid rebound as life returns to normal with fears about the COVID-19 pandemic waning. That should boost the company's sales this year and into 2022. But how long can AMC's growth story last? Movie-theater attendance was declining somewhat even before the pandemic. It won't be surprising to see that trend resume after an initial resurgence.
Meanwhile, Vertex continues to focus on treating the remaining 10% of CF patients that its current drugs can't help. The company is also developing experimental therapies for other rare diseases, including alpha-1 antitrypsin deficiency, APOL1-mediated kidney diseases, beta-thalassemia, Duchenne muscular dystrophy, and sickle cell disease.
Vertex isn't limiting itself to just rare diseases, though. It's testing an experimental drug for the treatment of acute pain following certain types of surgeries in phase 2 clinical trials. The biotech is evaluating a gene therapy in a phase 1/2 study that holds the potential to essentially cure type 1 diabetes
The important thing to note is that Vertex doesn't need all of these programs to be successful. If only one or two of them pan out, this biotech stock should deliver tremendous returns.
Beyond the hype
I think it's quite possible that AMC and/or Dogecoin will outperform Vertex over the short term. If you're a short-term trader looking to capture quick profits, that's great. However, my focus from the beginning has been on the long term.
Sooner or later, the hype for AMC and Dogecoin will die down. What happens then? Short-term traders will turn to another stock or cryptocurrency to ride.
Vertex, though, is working every single day to treat and even cure diseases that cause suffering for many people around the world. Its CF franchise is generating billions of dollars in sales every year, and the company is using its growing cash stockpile to fund further development and make more deals to bolster its pipeline.
My view is that these continuous efforts will make Vertex a bigger winner than either AMC or Dogecoin over the long term.