With fresh signs coming out Tuesday that the U.S. economy is starting to slow in response to rising interest rates, growth stocks could be in for a tough second quarter. After all, out-of-favor tech and biotech equities rallied early on in the first quarter of 2023 under the belief that the U.S. economy might be able to avoid a recession altogether in 2023, despite the central bank's aggressive rate hikes.
Another wave of bearishness shouldn't discourage investors, however. There are a few growth stocks that are more than capable of generating healthy returns even in a recession. The two stocks discussed below, for instance, have economically insensitive business models and stellar long-term prospects. Read on to find out more.
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1. Catalyst Pharmaceuticals
Catalyst Pharmaceuticals (CPRX -2.91%) has been on a five-year bull run. And while it might seem like this rare-disease drugmaker might be ready to run out of steam, the opposite is actually true.
The quick backstory is that Catalyst first became a red-hot growth stock following the Food and Drug Administration (FDA) approval for the Lambert-Eaton myasthenic syndrome (LEMS) drug Firdapse in 2018.
Firdapse got off to a blistering start from a sales standpoint, which is nearly unheard-of for a small-cap drugmaker. In 2022, the drug's sales rose by a whopping 52% to $214 million.
Firdapse's growth, in turn, enabled Catalyst to expand its product portfolio through the acquisition of the FDA-approved epilepsy medication Fycompa last January. Management estimates that Fycompa will bring in $130 million in sales over the balance of the year.
With cash reserves that could easily top $400 million by year's end, Catalyst is highly likely to continue building its product portfolio via more bolt-on deals in 2024 and beyond. As a result, investors shouldn't hesitate to add this sizzling growth stock to their portfolios right now.
2. Eli Lilly
Thanks to an emphasis on lightning-quick drug development, Eli Lilly (LLY -1.00%) has overcome a slew of patent headwinds to become the biggest pure-play pharmaceutical company by market capitalization in the world. Nonetheless, it still has enormous growth potential.
The key reason is the looming label expansion for the Type 2 diabetes drug Mounjaro. Late last year, Lilly initiated the FDA regulatory-review process for Mounjaro as a potential weight-loss treatment. As a best-in-class option for weight reduction, Wall Street analysts think this medication could hit an eye-catching $27 billion in sales by 2032.
To put this figure into context, Lilly is forecast to hit $36.4 billion in total sales for the whole of 2024. So Mounjaro is set to become the drugmaker's flagship medication and main growth driver over the remainder of the decade.
Speaking to this point, Lilly's stock might be valued at as little as five times 2032 earnings (this author's calculation), without even factoring in potential share repurchases over the next nine years. Of course, this deep-value proposition is dependent on multiple assumptions that may or may not pan out over this extended time frame. But this back-of-the-envelope math does illustrate the immense potential Mounjaro holds as a value creator.
All told, Lilly should have no trouble shrugging off any near-term economic turmoil, thanks to its stellar long-term outlook.
