The healthcare industry may not carry the same glitz and glamour for investors as other sectors. However, this has proven to be one of the most defensive spaces for investors to focus their capital in both volatile and calm market environments.
If you're looking to boost your portfolio potential with resilient businesses in the new year, don't overlook these two fantastic companies the next time you go shopping for stocks.
1. Vertex Pharmaceuticals
The rare disease drug market is a fast-growing but historically underserved space on track to see its valuation grow to about $340 billion by the year 2030. A key player in this industry is Vertex Pharmaceuticals (VRTX 0.10%), a company that has made a name for itself and built a robust history of profitability around its portfolio of medicines that treat the rare genetic disease cystic fibrosis.
The cystic fibrosis treatment landscape has changed significantly in recent years with the introduction of new and innovative therapies to the market. One class of drugs that has made significant headway in this regard, both to extend life and improve the quality of life for cystic fibrosis patients, are CFTR modulators. These drugs target the ill-functioning protein that leads someone to develop the genetic disease. Not only are all of Vertex Pharmaceuticals' approved products CFTR modulators, they are the only CFTR modulators currently on the market.
The improvement these products can effect for patients' mortality rates and quality of life also means that demand for Vertex Pharmaceuticals' products is consistent and growing. Moreover, patients are required to take these medications daily, so these are not one-and-done therapies but durable sources of revenue and profits for the company. The company reported an 18% increase in revenue in the third quarter of 2022, while its net income rose 9% year over year, a respectable clip for a healthcare business in this stage of growth. It's also worth noting that the company has its eye on expanding into many other lucrative areas of the rare disease drug market in the years ahead.
Vertex Pharmaceuticals' current pipeline includes a range of promising candidates: a therapy it's developing with Moderna for cystic fibrosis patients who can't take CFTR modulators; drugs that treat inherited disorders like alpha-1 antitrypsin deficiency and APOL1-mediated kidney disease; and a therapy that it developed with CRISPR Therapeutics that could soon be approved by regulators as a one-time functional cure for sickle cell disease and transfusion-dependent beta thalassemia.
In short, Vertex Pharmaceuticals' runway for growth is still in the early innings. Long-term investors can benefit both from the continued growth it's sustaining from an expansive foothold on the cystic fibrosis drug market -- currently valued at roughly $7 billion -- as well as its potential to expand into other multibillion-dollar addressable markets in the years ahead.
2. Intuitive Surgical
Intuitive Surgical (ISRG -0.41%) has also made a name for itself as the leader in the lucrative, fast-growing space of the broader healthcare industry. The company is the global market share leader in the field of surgical robotics, an industry expected to be worth a stunning valuation of nearly $20 billion by the year 2030.
With an approximate share of about 80% of this market, the growth of this industry and continued adoption of surgical systems by medical providers around the world portend well for Intuitive Surgical's continued growth over the next five to 10 years and well beyond. Intuitive Surgical has a long history of not only growing its revenue, but remaining profitable. Over the past decade, the company has witnessed annual earnings and revenue growth to the tune of about 150%, with a total share-price return more than double that amount in the same period of time.
If you've been paying any attention to this stock in recent months, you've likely noticed that shares are trading down about 18% over the past year alone. The reason for this isn't stemming from a specific weakness inherent to Intuitive Surgical's business but largely due to the fact that the company has seen a deceleration in revenue and earnings as procedure volumes have remained in flux in some of its key markets.
As COVID-19 cases have surged in certain parts of the world, this has inevitably slowed the pace of surgical procedures, which means fewer systems have been installed than in past years. The strength of the U.S. dollar, as with many companies whose operations span global borders, has also been a factor in the pullback in Intuitive Surgical's top- and bottom-line growth in recent quarters. Still, revenue is growing at a healthy clip, and the company remains profitable.
These elements also aren't long-term headwinds, and Intuitive Surgical is well positioned to ride out near-term bumps in the road. The company had a stash of $7.4 billion in cash and investments on its balance sheet at the end of the third quarter. It also reported net income to the tune of $324 million in the three-month period, with revenue growing 11% year over year to $1.6 billion. The company's strong core financials and indomitable market leadership make it a compelling play for long-term healthcare investors to consider adding to a well-diversified portfolio, regardless of another bear market.
