Some investing decisions are really hard to make. Others, though, can be quick and easy. That's the case when the stocks offer compelling growth prospects that are undeniable.
We asked three Motley Fool contributors to pick no-brainer biotech stocks to buy in November. Here's why they chose Bristol Myers Squibb (BMY 0.11%), Exelixis (EXEL -1.59%), and Vertex Pharmaceuticals (VRTX 1.28%).
A diverse business that's trading at a low valuation
David Jagielski (Bristol Myers Squibb): Growth, dividends, and a diverse business make healthcare giant Bristol Myers Squibb an easy stock to justify buying and forgetting about. And the company is coming off a strong quarterly performance that makes it look like an even better deal.
For the period ended Sept. 30, the company posted an adjusted per-share profit of $2, beating analyst expectations of $1.92. It was the second quarter in a row where the healthcare company delivered a positive earnings surprise. Bristol Myers' revenue for the quarter totaled $11.6 billion and rose by 10% from the prior-year period. There were also several products that grew by at least 10% during the quarter, including its top-selling multiple myeloma drug Revlimid, which brought in $3.3 billion (an 11% increase year over year).
While some investors may be concerned about the company losing patent protection of Revlimid with generics likely becoming available as early as next year, this is a problem that all healthcare companies will inevitably face. What's important is that Bristol Myers has a strong track record for innovation over the years. And when in doubt, it can always acquire other businesses, just as it did in 2019 when it bought Celgene for $74 billion to bolster its pipeline.
And while Revlimid is important to the business, Bristol Myers isn't going to suddenly lose all of its revenue from the drug, nor will it collapse without it. Over the past three quarters, the drug has generated $9.5 billion in revenue, accounting for 28% of the company's top line. Bristol Myers has a diverse business (its current pipeline involves the study of more than 40 disease areas) that can weather the storm. That's why it's a safe pick for the long haul.
Over the past three months, Bristol Myers' stock has underperformed the markets, falling by more than 10% while the S&P 500 has risen 5%. However, the company may prove to be an underrated investment moving forward as its shares trade at less than eight times its future earnings.
If you're looking for a solid growth stock to buy or just a top dividend (its 3.4% yield is well above the S&P 500 average of 1.3%), Bristol Myers makes for a terrific long-term buy, especially now, while its shares look incredibly cheap.
A whole pipeline in one drug
Prosper Junior Bakiny (Exelixis): The field of oncology attracts some of the world's largest pharmaceutical and biotechnology companies. But even in this highly competitive market, Exelixis managed to carve out a niche for itself. This drugmaker is hardly a household name, but its financial results have been steadily improving in the past few years -- something it owes to its flagship product, Cabometyx.
Cabomextyx is approved to treat renal cell carcinoma (RCC) and hepatocellular carcinoma (HCC). In RCC, it is the No. 1 prescribed medication of its kind. It was also the first to achieve significant improvement in three key parameters: overall survival, progression-free survival, and objective response rate. In other words, Cabometyx is a big deal that isn't done racking up regulatory nods.
Exelixis is currently running several dozen clinical trials for Cabometyx as a stand-alone or combination therapy for many other forms of cancer. As the drug earns more label expansions, that will have a meaningful impact on Exelixis' top line.
We've already seen that happen. In January, Cabometyx was approved as a first-line combination treatment for advanced RCC, along with Bristol Myers Squibb's Opdivo. The result? In the second quarter, Cabometyx's total revenue jumped by 59% year over year to $275.6 million. The company attributed this performance to the "broad adoption" of Cabometyx and Opdivo as a leading first-line therapy for RCC.
Cabometyx should continue to make headway. Exelixis set a goal to achieve an annual run rate of $1.5 billion for the medicine by the end of next year. For context, the biotech reported total revenue of $987.5 million in 2020.
Investors expect the drugmaker's bottom line to grow by 46% per year for the next five years. That's pretty good for a biotech company. Moreover, Exelixis is currently advancing its early-stage pipeline, which includes a promising cancer therapy called XL092.
The company's shares dropped significantly earlier this year after it reported mixed results from a clinical trial, but in my view, that was a major overreaction. Exelixis still hasn't recovered from this blow. But given the company's prospects, this biotech is a strong buy after its recent struggles.
As good as they come
Keith Speights (Vertex Pharmaceuticals): You'll have a hard time finding a better biotech right now than Vertex Pharmaceuticals. It's already highly profitable with growing revenue and earnings. Vertex also has attractive growth prospects.
The company's strong financial position stems from its cystic fibrosis (CF) franchise. Vertex markets the only CF drugs that treat the underlying cause of the genetic disease. Although Vertex enjoys a monopoly in CF, it still has plenty of room to grow by winning additional reimbursement deals and gaining approvals for younger age groups.
What about competition? Sure, there are a handful of other companies that are developing CF drugs. However, none of them have advanced beyond phase 2 testing yet. That puts Vertex in an enviable position for at least several more years.
In the meantime, Vertex is looking to expand beyond CF. It hopes to be in a position to file for regulatory approvals for CTX001 in 2023 as a treatment for rare blood diseases beta-thalassemia and sickle cell disease. Vertex is developing the gene-editing therapy in partnership with CRISPR Therapeutics.
The company's pipeline includes a couple of other programs in phase 2 studies. Vertex is evaluating VX-147 in treating APOL1-mediated kidney diseases and VX-548 in treating pain.
The biotech also reported positive results recently from a phase 1 study of VX-880 in treating type 1 diabetes. Vertex could especially have a major opportunity with using encapsulated islet cells to effectively cure the widespread disease.
Don't be surprised if Vertex expands its pipeline even more through business development deals. The company's cash stockpile is large and continues to grow. With this financial flexibility combined with a monopoly in CF and a promising pipeline, Vertex really does look like a no-brainer biotech stock to buy in November.