The stock market is in a precarious place. The sharp rise in both interest rates and bond yields has weighed heavily on most stocks since the first quarter of 2022. A select handful of stocks have been immune to this downward trend, however. Most companies with robust free cash flows and economically insensitive business models have not only escaped this broad sell-off, but they have actually thrived in this pressure-packed environment.
The top-shelf drugmakers Novartis (NVS 1.93%) and Vertex Pharmaceuticals (VRTX 0.20%) are two prime examples. Over the prior 15 months, these two large-cap pharmaceutical equities have stormed higher as the broader markets fell into bear territory.
NVS Total Return Level data by YCharts
Here's why these two winning pharma stocks are poised to continue their bullish ways, regardless of what the broader markets do over 2023 and beyond.
Novartis: An innovation juggernaut
Novartis has been able to defy the ongoing bear market as a direct result of its heavy emphasis on innovation. Keeping with this theme, the Swiss drugmaker recently announced positive top-line data for breast cancer drug Kisqali in the adjuvant setting. A label expansion in this setting could boost the drug's peak sales by as much as $2 billion, according to multiple analysts.
Novartis' surfeit of blockbuster products and wealth of high-value late-stage pipeline candidates are widely expected to keep the company's top line churning higher over the balance of the decade -- despite headwinds emanating from the loss of exclusivity for anemia medicine Exjade and cancer drug Afinitor.
In addition to this steady top-line growth, Novartis stock pays a top-shelf dividend. At current levels, the company's dividend yield stands at 3.81% on an annualized basis. That's not quite high-yield status (4% or higher), but it is among the highest within the large-cap drug manufacturing space.
All told, Novartis' proven ability to overcome patent headwinds and pay an above-average dividend yield ought to enable its stock to push higher in the months and years ahead.
Vertex: A wide economic moat
There aren't many sure things in life. But Vertex's multibillion-dollar revenue stream might be one of them. The key reason is that Vertex sports a virtual monopoly in the treatment of the rare lung disorder known as cystic fibrosis (CF). CF is a progressive, inherited condition that impacts approximately 40,000 children and adults in the United States.
In 2022, Vertex hauled in $8.93 billion, an 18% increase over the prior year. The company booked a whopping 86% of its sales from a single CF triple combination therapy known as Trikafta/Kaftrio. This year, Wall Street analysts expect this revenue figure to grow to a stately $9.6 billion.
Although CF has long been an area of intense research within the pharmaceutical industry, Vertex is the only company that has managed to bring a truly disease-modifying treatment to market. Wall Street, for its part, doesn't expect this situation to change anytime soon.
Looking ahead, Vertex plans to leverage its success in CF to build out several additional franchises in the areas of rare blood diseases, type 1 diabetes, nerve pain, APOL1-mediated kidney disease, and others.
While there is no guarantee Vertex will replicate its success in CF in these other disease areas, the simple truth is the company can afford to pursue these high-risk indications because of its dominant position in CF.
Bottom line: Vertex's wide economic moat makes its stock a top buy in any type of market.
