Since the end of the Great Recession, growth stocks have run circles around value and income stocks. Historically low lending rates and ongoing quantitative easing measures by the nation's central bank have allowed fast-growing companies to borrow cheaply to expand and innovate.
This outperformance is particularly noticeable when comparing the aggregate returns of the benchmark S&P 500 since the Great Recession bottom in March 2009 to the technology-driven Nasdaq 100 over the same time frame. The Nasdaq 100 consists of the 100 largest nonfinancial companies listed on the Nasdaq exchange. Over the past 12.5 years, the Nasdaq 100 has more than doubled up the S&P 500 (up 559%) with a gain of 1,380%.
Despite these huge gains, great deals can still be found in this innovation-driven index. The following trio of Nasdaq 100 stocks are all great companies with clear-cut competitive advantages that are just begging to be bought in September.
Image source: Getty Images.
Vertex Pharmaceuticals
Arguably the most attractive Nasdaq 100 stock in September is specialty biotech company Vertex Pharmaceuticals (VRTX +1.41%).
The vast majority of biotech stocks are burning through their cash while in search of their first blockbuster drug (i.e., a drug capable of $1 billion or more in annual sales). This isn't the case for Vertex, which has developed multiple generations of blockbuster therapies.
What really allows this company to stand out is its cystic fibrosis (CF) franchise. CF is a genetic disease with no cure that's characterized by thick mucus production that can obstruct the lungs and pancreas. Vertex has developed four generations (and counting) of gene-targeted therapies designed to improve lung function and quality of life for CF patients.
The company's newest CF drug, combination treatment Trikafta, targets the most common mutation and can be administered to around 90% of all CF patients. The U.S. Food and Drug Administration approved it a full five months ahead of its scheduled review date, and it's already pacing an annual sales run rate of $5 billion, based on second-quarter revenue. This CF franchise is currently well protected from competition, and it should remain a cash cow for the company for the foreseeable future.
In addition to ongoing studies in CF, Vertex has more than a half-dozen internally developed and out-licensed compounds in clinical trials. This includes VX-147 as a potential treatment for APOL1-mediated kidney diseases, VX880 as a treatment for type 1 diabetes, and CTX001 for both sickle cell disease and beta thalassemia. Vertex's robust cash flow from its CF franchise is providing plenty of capital to fund organic research and clinical studies.
Lastly, take notice that Vertex ended June with $6.71 billion in cash, cash equivalents, and marketable securities. With so much capital on hand, it wouldn't be a surprise if Vertex went shopping to beef up its pipeline or diversify its product portfolio.
The bottom line is this: A company consistently growing sales by a double-digit percentage shouldn't be valued at a mere 14 times Wall Street's estimated forward-year earnings. That's a big-time bargain for investors.
Image source: Sirius XM.
Sirius XM
Another Nasdaq 100 stock that's begging to be bought by opportunistic investors in September is satellite-radio provider Sirius XM (SIRI +0.00%).
It's not often investors have a chance to buy a legal monopoly, but that's exactly what they can do with Sirius XM. Even though it does face competition from terrestrial and streaming radio providers, Sirius XM is the only authorized satellite-radio company, which does come with perks that I'll touch on in a moment.
Aside from this monopoly status, what really differentiates this company from its peers is its revenue generation. Traditional and online radio providers are advertising-driven businesses. Meanwhile, Sirius XM generates more than three-quarters of its revenue from subscriptions. When inevitable economic downturns arise, advertising revenue usually dries up quickly, which can leave terrestrial and online radio providers in bad shape. But this isn't a big problem for Sirius XM. In fact, during the pandemic-impacted 2020, subscription revenue actually rose. Relying on subscriptions as opposed to ad revenue allows Sirius XM to navigate recessions better than its peers.
As for those aforementioned perks, it benefits from a handful of predictable and/or fixed costs. Although Sirius XM shells out a pretty penny for talent and royalties, its transmission and equipment costs are relatively unchanged from one year to the next. For example, no matter how many new net subscribers the company adds every year, its transmission costs don't change very much. This is a recipe for modest operating margin expansion over time.
The rise of electric vehicles (EVs) presents another opportunity for Sirius XM. As consumers and businesses swap out older combustion-engine vehicles in favor of EVs, Sirius will have an opportunity to dangle its hook to lure in new subscribers. This should be a multidecade vehicle replacement cycle, which means plenty of organic growth opportunities for the company.
Image source: Amazon.
Amazon
The third and final Nasdaq 100 stock that's begging to be bought in September is none other than e-commerce giant Amazon (AMZN +1.36%).
When Amazon reported its second-quarter operating results at the end of July, something unusual happened -- its share price was clobbered. That's because the company cautioned that its sales growth would slow in second half of the year. This shouldn't come as a big surprise, given that an increase in coronavirus vaccination rates has encouraged some consumers to get out of their homes and shop in brick-and-mortar retailers, once again.
However, any double-digit percentage decline in Amazon's stock has historically proved to be a buying opportunity for patient investors. Amazon's complete dominance in two industries makes it a surefire stock for growth investors to buy and hold.
Most folks are probably familiar with Amazon for its marketplace. In late April, eMarketer issued a report estimating that Amazon would control about 40% of all U.S. online retail market share this year. For some context, Walmart is Amazon's closest online retail competitor by market share, and it trails by more than 33 percentage points.
Admittedly, retail margins aren't anything to write home about, and Amazon knows it. This is why the company has so aggressively pushed its Prime subscription. Earlier this year, the company hit 200 million global memberships. The fees Amazon collects from Prime help lift its thin retail margins and ensure it can undercut brick-and-mortar retailers on price.
What you might not realize is that Amazon is also the kingpin of global cloud infrastructure services. Amazon Web Services brought in close to a third of all cloud infrastructure spending in the first quarter, according to Canalys, and it's closing in on a $60 billion annual sales run-rate. Even though retail sales may slow in the second half of 2021, the company's significantly higher margin sales channels, like AWS, subscriptions, and advertising, are growing exceptionally fast.
Long story short, Amazon remains on track to more than double its operating cash flow by mid-decade. Its share price could reasonably hit $10,000 by 2025.
