Sizzle, sizzle, fizzle, fizzle. That's a common pattern that investors see. Many stocks that skyrocket can't keep the momentum going. Gravity eventually kicks in.
However, some exceptions especially stand out right now. Here are three red-hot stocks that could continue to beat the market.
1. Axsome Therapeutics
Axsome Therapeutics (AXSM 2.79%) has absolutely sizzled this year. The biotech stock has more than doubled, with most of the gain coming in just the last couple of months.
There's no mystery behind Axsome's recent surge. The U.S. Food and Drug Administration (FDA) granted approval in August to Auvelity for treating major depressive disorder. The drug already appears to be off to a great start.
If Auvelity's sales pick up more than expected, look for Axsome's share price to move higher. However, other factors could turbocharge the stock in 2023.
In the first half of next year, Axsome expects to report results from a phase 3 study evaluating AXS-12 in treating narcolepsy. It should file for FDA approvals of AXS-07 in treating migraine and AXS-14 in treating fibromyalgia next year as well.
2. Devon Energy
Devon Energy (DVN 0.84%) has delivered a gain of more than 40% this year. But the oil and gas producer's total year-to-date return tops 50% thanks to a mouthwatering dividend.
Some might point to Devon's decline since its third-quarter update as a reason to think its momentum has fizzled. It's important to note, though, that the pullback resulted from lower oil prices causing the company to reduce the variable portion of its dividend.
Don't assume oil prices will continue their downward trajectory. The U.S. Energy Information Administration expects oil prices will rise to more than $90 per barrel by the second quarter of 2023.
As my colleague Matt Dilallo recently pointed out, Devon would still be ridiculously cheap with oil at $80 per barrel. I look for this oil stock to resume its impressive climb next year and for its dividend to increase once again as well.
3. Vertex Pharmaceuticals
Vertex Pharmaceuticals (VRTX 1.25%) stock isn't very far from generating a 50% return in 2022. This strong performance is well deserved after the big biotech consistently reported strong quarterly results and made solid pipeline progress.
It's not too late to get on the Vertex bandwagon, though. The company's cystic fibrosis (CF) drugs still have significant growth opportunities with additional reimbursement deals and expanded labels that include younger age groups. More importantly, Vertex should soon branch out beyond CF.
Vertex and CRISPR Therapeutics plan to begin filing for regulatory approvals this month of exa-cel for treating sickle cell disease and beta-thalassemia. The gene-editing therapy should become Vertex's next blockbuster within the next few years, assuming it wins approvals as widely expected.
Over the longer term, Vertex could have other big winners on the way. The company is already testing the non-opioid pain drug VX-548 in a late-stage clinical study. Inaxaplin is also in pivotal testing as a treatment for APOL1-mediated kidney disease. The indication presents a bigger market opportunity for Vertex than CF alone. In addition, Vertex continues to move along with an early-stage program that could lead to a cure for type 1 diabetes.
