Three simple words can make you a lot of money over the long run: buy and hold. Many investors, though, buy and sell quickly -- often too soon to realize big gains.
We asked three Motley Fool contributors to identify unstoppable growth stocks to buy and hold. Here's why they chose Pfizer (PFE -3.85%), Thermo Fisher Scientific (TMO -0.98%), and Vertex Pharmaceuticals (VRTX -0.76%).
Buy low, sell never
Prosper Junior Bakiny (Pfizer): Pfizer has grown its top line at an incredible pace over the past two years. As everyone knows, the drugmaker owes this solid financial performance to its coronavirus portfolio. But skeptics argue that this momentum won't last for much longer. That's likely true, but it hardly tells the whole story. Pfizer was a solid pharma stock before it dipped its toes into the coronavirus vaccine market.
In 2020, Pfizer ranked as the eighth-largest pharmaceutical company based on revenue. Pfizer's COVID-19 vaccine, Comirnaty, first earned authorization in the U.S. in December of that year. Pfizer has encountered some headwinds since then. Most notably, the immunosuppressant Xeljanz ran into regulatory roadblocks that impacted its sales growth. Some of the drugmaker's older products, such as cancer drug Ibrance and rheumatoid arthritis medicine Enbrel, are seeing their sales drop, too.
But that's where the company's recent success comes into play. Pfizer has expanded its pipeline by going on an acquisition spree, paid for partly through the revenue it raked in due to its successful coronavirus-related efforts. The company expects up to 18 potential approvals in the next 18 months. And that's just the beginning. Thanks to its deep pipeline, Pfizer should be able to deliver significant regulatory wins routinely.
It's also worth noting that over the past few years, Pfizer has become more focused on its core biopharma operations by shedding parts of its business that had become deadweight. For instance, it spun off its generic drug unit Upjohn in late 2020, which combined with the company formerly known as Mylan to become Viatris.
As a more focused business flush with cash and armed with the proven ability to navigate the highly regulated pharmaceutical industry successfully, Pfizer should be able to deliver solid returns for investors for a long time. And given that it is only trading at a forward price-to-earnings (P/E) ratio of 7.5, now is as good a time as any to buy the company's shares -- and never sell.
Thermo Fisher's aggressive M&A streak isn't stopping
David Jagielski (Thermo Fisher Scientific): Buying up businesses and growing via acquisitions isn't a strategy that always pays off. But Thermo Fisher Scientific has been successful in making that work. The company has been involved in more than 60 mergers and acquisitions in its history, and it shows no signs of slowing down. Last year, Thermo Fisher closed on a huge $17.4 billion purchase of clinical research services company PPD. And just last month, it announced plans to buy specialty diagnostics company The Binding Site for $2.6 billion.
Thermo Fisher has proven to investors that it can incorporate companies into the fold without adversely impacting its financials. On the contrary, the business has benefited significantly. Last year, sales of $39.2 billion were more than double the $18.3 billion it reported five years earlier in 2016. And while it's true COVID-19 testing did give it a big boost, all of Thermo Fisher's business units saw strong growth during those years, including laboratory products and biopharma services, which rose 121% to $14.9 billion.
The company can afford to do large deals because its operations are flush with cash. Over the trailing 12 months, Thermo Fisher's free cash flow has totaled $5.6 billion. It also has $2.9 billion in cash and cash equivalents on the books as of the end of September.
With a broad business that covers diagnostics, laboratory products, biopharma services, life sciences, and analytical instruments, Thermo Fisher is a diverse and stable company that has the potential, thanks to its strong financials, to continue getting bigger over the years. The stock is truly unstoppable. While its P/E multiple of 30 may seem high right now, Thermo Fisher Scientific could still be a great investment in the long run.
A monopoly with more markets on the way
Keith Speights (Vertex Pharmaceuticals): Some investors might be leery of buying a stock near its all-time high. That's exactly where Vertex is these days, with shares skyrocketing around 40% so far this year. However, there are some good reasons why the biotech stock could rise even more.
The biggest threat for drugmakers is that the clock begins ticking after they launch a product. Biopharmaceutical companies have a limited time before their drugs lose patent exclusivity. As a result, they must continually invest in developing or acquiring new products to keep growing.
Vertex has proven to be a master at this. It commands a monopoly in treating the underlying cause of cystic fibrosis (CF). The company has used the tremendous cash generated by its CF franchise to build out an impressive pipeline that goes far beyond CF.
That pipeline currently features four programs that could easily be blockbusters. The first likely to win approval is exa-cel. Vertex and CRISPR Therapeutics plan to soon file for regulatory approvals of the gene-editing therapy in treating (actually, curing) rare blood disorders transfusion-dependent beta-thalassemia and sickle cell disease.
Vertex is also already preparing for the potential commercialization of VX-548 in the near future. This non-opioid candidate is being evaluated in late-stage clinical testing for alleviating acute pain.
In addition to these two programs, Vertex's pipeline includes two other promising late-stage drugs. The triple-drug combo of vanzacaftor/tezacaftor/deutivacaftor holds the potential to be the company's most powerful CF therapy yet. Inaxaplin (VX-147) could be on track to become the first approved drug for treating APOL1-mediated kidney disease.
Vertex is the kind of company that should thrive in a recession or in a strong economy. I'm convinced that this biotech stock is one to buy now and hold for a long time to come.
