It's that time of year again. September has historically been the worst month for stocks. And as talk of a possible downturn permeates the financial news media, it might be wise to identify a few good companies that are in a position to withstand volatility.
To find stocks that fit the description, we asked three Motley Fool contributors to share which stock they thought could help investors stay calm amid any market turbulence. They chose Exact Sciences (EXAS 1.38%), Pfizer (PFE -2.01%), and Vertex Pharmaceuticals (VRTX -1.82%). Here's why.
The present and future of cancer screening
Jason Hawthorne (Exact Sciences): Since 2014, Exact Sciences has been known for Cologuard, its at-home test for early cancer screening. By all measures, it has been a wild success. The company sold $39 million worth of the tests in 2015. It has parlayed that early product into $1.7 billion in total revenue over the last 12 months across several categories.
Cologuard is still the driver. But management expects more than $500 million this year to come from precision oncology (where its product identifies genetic information about a patient's tumor) and up to $80 million in COVID testing.
While companies like Guardant Health and Illumina, with its pending acquisition of Grail, tend to garner the headlines, Exact Sciences is keeping up its efforts to commercialize a multi-cancer liquid biopsy screening test. It's a market that the company estimates is worth $25 billion annually.
Last year, management showed off preliminary data from its own multi-cancer screening test that demonstrated 95% specificity (5% false positives) across six tumor types. About a month later, it purchased Thrive Earlier Detection. In a study of 10,000 women, Thrive's test diagnosed more than twice as many cancer patients as traditional methods. In fact, by looking for genetic mutations in the blood, it found cancers from 10 different organs.
Competition in multi-cancer diagnostics will be fierce. For its part, Grail has already started selling its liquid biopsy test, called Galleri, in the U.S. Guardant was the first to have its liquid biopsy tests approved for profiling tumor mutations and guiding treatment.
With a head start in the lucrative colorectal cancer screening field, Exact Sciences has a strong foundation to launch its own tests. Although its financials show massive operating losses, those are due to spending on research and development, as well as marketing Cologuard. In the first six months of 2021, the company spent more than $1 billion on those efforts. That was far more than the $837 million it racked up in revenue.
The stock might drop in a sell-off, but it has a viable business with predictable revenue that Wall Street can value. That could provide ballast compared to rivals if access to capital dries up. Exact Sciences isn't what you would normally consider a conservative investment. But in the large and growing diagnostics space, it could be the safest choice for investors with a time horizon long enough to let the competition play out.
A pharmaceutical giant, a coronavirus vaccine leader, and a high-yield dividend stock all in one
Rachel Warren (Pfizer): If you're on the hunt for crash-ready stocks to add to your portfolio, I'd like to suggest a household name for your consideration. Pfizer has garnered plenty of headlines throughout the pandemic due to its ultra-successful partnership with BioNTech that produced Comirnaty, the first-ever coronavirus vaccine to receive full approval from the Food and Drug Administration.
The company is already on track to bring in tens of billions of dollars in revenue from Comirnaty in 2021 alone. The strong possibility that a booster shot of the vaccine will eventually be distributed globally is also certain to produce meaningful top- and bottom-line growth in Pfizer's upcoming financial reports.
But Pfizer's staying power in long-term investors' portfolios is far from dependent on Comirnaty, although global demand for the vaccine is likely to be considerable over the next few years at least. The company also has a top-notch portfolio of hundreds of products featuring the likes of blockbuster medicines such as blood thinner Eliquis and cancer drug Ibrance, as well as major brand names like Advil, Lyrica, and Viagra.
In the most recent quarter, Pfizer reported year-over-year revenue growth of 10%, and that's without sales of Comirnaty. Counting revenue derived from the coronavirus vaccine, revenue surged by 86% operationally while its net income jumped 59% year over year.
Shares of Pfizer haven't seen quite the same rapid gains that other contenders in the coronavirus vaccine race have during the pandemic. Even so, the stock has jumped by about 30% over the past six months alone.
Pfizer is by far one of the least speculative buys of the top coronavirus vaccine stocks. The company is a leader in the global pharmaceutical industry with more than 170 years in business, so its foothold in this explosive market was well established long before the pandemic. The stock can also deliver portfolio returns through its dividend, which currently yields 3.4%.
It's also worth noting that noncyclical industries such as healthcare tend to fare particularly well during market downturns, as consumers need the products and services they provide regardless of what's happening with the stock market or economy. If you're a long-term investor searching for a resilient investment that can generate sustainable returns, Pfizer is certainly a compelling choice to consider.
A durable franchise with strong prospects
Steve Ditto (Vertex Pharmaceuticals): Vertex is everything you might look for in a company if you're worried about a market crash. It's a profitable business at an attractive price with a product its customers literally can't live without.
Vertex has built an enviable business by developing the leading treatment for cystic fibrosis. In the second quarter, Vertex grew revenue 18% year over year and management upped year-end guidance by $500 million to a range of $7.2 billion to $7.4 billion. Vertex ended the quarter with $6.7 billion in cash and announced a $1.5 billion stock repurchase authorization. All those metrics bode well for it to endure a market crash.
The company is continuing to grow its core business through international expansion; approvals to treat younger patients; and continued clinical advancements that improve the efficacy, profitability, and patent protection of its cystic fibrosis franchise.
Vertex is using its cash to fund partnerships with biotech companies. One particularly promising relationship is with CRISPR Therapeutics, hoping to be first to market with a gene-editing treatment potentially worth billions. Vertex has been placing bets on other companies with promising technologies, like Arbor Biotechnologies, Affinia Therapeutics, Moderna, Obsidian Therapeutics, and Skyhawk Therapeutics. To a degree, investing in Vertex is like being part of a venture fund with a really big winner already in the bag and some really promising opportunities lined up to drive future growth.
Despite all this business momentum, the stock price has been under a lot of pressure due to concerns about narrowing growth opportunities and potential competition from AbbVie in the core cystic fibrosis market. As a result, Vertex is 29% below its 52-week high and has a P/E under 16, versus an average of almost 35 for the S&P 500.
These concerns could very well prove to be overblown. Vertex treatments for cystic fibrosis became the market leaders based on efficacy and safety. Even a solid competitive offering is unlikely to knock it off its pedestal anytime soon since patients and physicians are unlikely to change programs. The uncertainty is offset by the strength of the balance sheet, the underlying support of the stock buyback program, optionality for future growth from external investments, and the likely durability of future revenue streams.
For long-term investors, including those concerned about a market crash, Vertex should provide a safe harbor with strong prospects as its investments come to fruition.