2022 was a rough year for the stock market. Nearly all sectors were dragged down amid economic uncertainty, fueled by rising interest rates. Nonetheless, companies with solid fundamentals can weather any storm over the long run. Diversifying one's portfolio with stocks from various industries that offer promising long-term growth is a smart way to make money through stock investing.
The healthcare sector is usually resilient in times of macroeconomic uncertainties mainly because healthcare isn't something consumers can postpone indefinitely. So diversifying one's investments across various industries in this sector is a prudent way to increase one's wealth. Vertex Pharmaceuticals (VRTX 1.04%), Intuitive Surgical (ISRG 0.60%), and cannabis company Green Thumb Industries (GTBIF -0.92%) are three stocks that offer potential long-term rewards. Let's see why.
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Vertex Pharmaceuticals has a robust upcoming pipeline
Boston-based Vertex Pharmaceuticals is a biotechnology company whose cystic fibrosis (CF) drugs have proven to be a huge success. These drugs should continue to drive the company's long-term success. Trikafta is currently Vertex's best-selling CF treatment. That drug alone generated $5.6 billion in revenue in the nine months ending 2022, out of a total of $6.6 billion in product revenue.
For the same period, the company's bottom line jumped 61% year over year to $9.68 per share.
At the end of the third quarter of 2022, Vertex had a robust cash balance of $9.8 billion, which could continue fueling development in new drugs.
Currently, Vertex generates 100% of its revenue from CF drugs. However, management has been working toward potentially diversifying its revenue sources. The company's research and development pipeline of drugs includes drug trials for sickle cell disease and beta thalassemia, developed in collaboration with CRISPR Therapeutics . In short, Vertex's strong drug pipeline could propel it to a larger and more diverse business in the next 10 years.
Looking back over the last 10 years, the stock returned a fabulous 512%, far outperforming the S&P 500's 151% gain in the same period. Moreover, the stock returned nearly 30% over the last 12 months in a very difficult macro environment while the index fell 19%, implying an outperformance by almost 50% over the broader market. While past performance does not indicate future success, investors can rest assured the company is run by reputable management, with the business prospects never being brighter. This is indeed a stock you can buy and hold on to indefinitely.
Intuitive Surgical has dominated the robotic surgery market
Medical equipment manufacturer Intuitive Surgical's cutting-edge da Vinci robotic systems have helped it dominate the minimally invasive surgery (MIS) market. These machines enable surgeons to use tiny instruments for smooth precision and provide 3D high-definition views of the operating area. Furthermore, using MIS procedures results in faster recovery times for patients.
The number of da Vinci procedures performed worldwide has grown by 82% between 2017 and 2021. It's important to note that this increase was despite the global pandemic that slowed the pace of optional procedures.
The company also profits from the sale of disposable surgical instruments and accessories, which contributes to its top line. It grew by a whopping 94% from $1.6 billion in 2017 to $3.1 billion in 2021..
Since the end of 2017, the company increased its installed base of da Vinci surgical systems from 4,409 to 7,364 systems at the end of Sep. 30, 2022.
Though MIS procedures are optional, their benefits lead to higher demand. The global robotics market is expected to grow at a compound annual rate of 10%, reaching $17 billion by 2031.
According to BIS Research, Intuitive already has almost 80% share in this market and could continue to dominate it till 2031. With the world's population aging, the demand for various surgical procedures should increase. Even if competitors have entered the market, it will be difficult to outperform Intuitive in the short term. This is because the hospitals invest heavily in purchasing these systems and spending time, money, and resources in training surgeons to use them. For hospitals, the da Vinci systems require a capital investment between $0.5 million to $2.5 million upfront.
Even if a new, cheaper product becomes easily available, hospitals are unlikely to make such significant investments again. Intuitive is already a market leader in a rapidly expanding industry. It has a competitive moat that has allowed it to consistently grow its revenue and profits. The minimally invasive surgery market also has a lot of room for growth. Intuitive already has a successful system. The company is well equipped and financially robust to develop more innovative products.
Green Thumb Industries is a top contender in the cannabis space
In 2022, cannabis stocks witnessed a bumpy ride. However, some of these multi-state players have strong fundamentals that will make them better companies as the industry expands. Green Thumb Industries, based in Illinois, is one such company. It has managed to quadruple its revenue from $216 million in 2019 to $894 million in 2021 in a highly competitive industry.
The cannabis producer has also generated positive net income according to generally accepted accounting principles (GAAP) for nine consecutive quarters. This exceptional performance stems solely from a small legal market.
The company's revenue increased 17% year over year to $758 million in the first nine months of 2022. Its store count has risen from 39 dispensaries in eight states in 2019 to 77 dispensaries in 15 states as of Sept. 30, 2022. Green Thumb is poised to gain a stronger foothold in the American market if cannabis is legalized federally in the U.S.
Pennsylvania and Florida could be upcoming hot markets for Green Thumb. Although neither state has legalized recreational cannabis, there has been progress.
Green Thumb operates under its Rise brand stores in the states. It has seven Rise stores in Florida now. Its recent leasing agreement with Circle K, a global convenience store chain, will allow it to open 10 Rise Express locations at Circle K locations across the state. Meanwhile, there are 16 Rise locations in Pennsylvania.
Though federal legalization will provide many opportunities for cannabis businesses, Green Thumb can grow its revenue and profits even in state markets. Furthermore, the global cannabis market is growing at an exponential rate, and it is expected to be worth $84 billion by 2027.
Profitable and stable cannabis companies, such as Green Thumb, have the potential to grow in the European medical cannabis market. This market could grow at a compounded rate of 61% by 2028, reaching a value of $14 billion. Once the market expands, stocks like Green Thumb would be expensive. Green Thumb is valued cheaply now, making it the right time for investors to buy and hold the stock for the long run.
Risky but rewarding choices
All three companies belong to high-risk industries. Healthcare is a defensive industry, which means that it deals with products and services that are always in demand, regardless of the state of the economy. However, biotech investors must be patient during the drug development process. There is also the likelihood that clinical trials will fail or that the drugs won't receive regulatory approvals. Vertex has already demonstrated its potential with several successful treatments, though. Meanwhile, Intuitive's dominance in the robotic device market speaks for itself.
The cannabis industry, however, is currently experiencing turbulence. But after federal legalization, the industry may boom, sending cannabis stocks higher. With these three promising stocks, a little patience could pay off very well in the future.
