The stock market has a habit of rewarding investors that stay with it through the ups and downs. Now, the performance of your portfolio in a wide range of market environments will be very specific to the stocks you buy, the length of time that you hold them, the diversification of your holdings, and the types of industries and companies you gravitate toward, to name a few key factors.
If you're on the hunt for stocks that could potentially increase your initial investment five times or more by the start of the next decade, here are two names to consider adding to a well-diversified basket of companies right now.
1. Vertex Pharmaceuticals
Vertex Pharmaceuticals (VRTX -0.79%) has built a profitable and market-leading franchise of cystic fibrosis medicines that, to this day, are the only drugs approved to treat the underlying cause of this insidious genetic disease. Even as Vertex Pharmaceuticals continues to dominate the multibillion-dollar cystic fibrosis treatment market, the company is aggressively working to position itself as a leading figure in other sectors of the rare disease drug market. From rare blood disorders to Type 1 diabetes to acute pain, the company has a range of promising candidates in the pipeline, each of which could pose blockbuster potential for this already highly profitable, growth-oriented business.
The company's rare blood disorder drug exa-cel, which could be a one-time functional cure for both sickle cell disease and transfusion-dependent beta-thalassemia, could be approved as soon as later this year. As for that acute pain candidate, VX-548, it is in phase 3 testing and is notably a non-opioid drug. Speaking about the potential of VX-548 in the 2022 earnings call, Chief Executive Officer and President Reshma Kewalramani said the following:
VX-548...holds a promise of highly effective pain relief without the side effects or addictive potential of opioids. If approved, VX-548 would represent the first new class of pain medicine in decades with the potential to address the staggeringly high unmet need in acute pain. VX-548 acts on the peripheral nerves to block the pain signal, and thus may be able to provide effective pain relief without the abuse potential, which is a central nervous system phenomenon.
In 2022, Vertex Pharmaceuticals raked in revenue of $9 billion, while net income totaled $3.3 billion and operating income $4.3 billion. These figures represented respective increases of 18%, 42%, and 55% from the prior-year period. Bear in mind that this follows the trailing five years, in which the company increased revenue, net income, and operating income by 193%, 58%, and 558%, respectively.
Even with the dominance of its cystic fibrosis franchise, management estimates that there are more than 20,000 people worldwide who could benefit from its existing drugs but aren't taking them. Management has also said that all the candidates in its mid- and late-stage clinical pipeline have transformative potential across an incredible eight different target diseases. All of these factors are bright green flags for Vertex Pharmaceuticals, and now could be an opportune time to initiate or add to a position in this unstoppable healthcare stock.
2. Upstart
Upstart (UPST -2.00%) has confronted a highly challenging market during the past year. Revenue has taken a downturn, dragging the company back into unprofitability amid a decline in loan volume and a growing reluctance from institutional investors to fund its loans. This was to be expected in a period where interest rates continue to rise, the cost of funding loans is elevated for investors, and the risk of default is higher for consumers.
A recent series of less-than-stellar financial reports have caused many investors to head for the hills, with the stock trading down almost 85% in the past 12 months, even after the shares rose about 28% this year. While I don't want to minimize the risk potential for this business, and shareholders will require a certain level of risk tolerance to maintain or add to a position in this stock, there are some distinct green flags for this business that are worth mentioning.
For one, the company's model -- which is founded on artificial intelligence and machine learning -- is learning at a faster rate and delivering better accuracy than ever before. Management noted in the 2022 earnings call that Upstart's platform had improved as much in the last seven months as in the prior 30 months. This is a large factor behind the decline in loan volume that Upstart has witnessed recently. Its model constantly adjusts to the environment at hand. During a time where the risk of borrower default is higher, and consumers are more capital constrained than in the recent past, it is approving few loans and charging higher interest rates on the loans it does approve. Moreover, Upstart's automation is at an all-time high. As of the end of 2022, 82% of all loan approvals processed through the platform were done without any human intervention.
Also key to note is the fact that while Upstart's institutional partners are funding fewer loans, and its platform is approving fewer loans, the company's network of banks, credit unions, and other lending partners continues to skyrocket. This could signal confidence in the underlying technologies and model behind Upstart, building the groundwork for a more robust recovery when interest rates eventually dip and capital markets becomes less constrained. As of the end of 2022, Upstart's network of bank and credit union partners had surged 119% from the prior year, while it ended the 12-month period with 90% more auto dealers on its platform than at the end of 2021.
Upstart's core competitive advantage is its proprietary AI platform. It leverages more than 1,000 data points, including non-traditional ones rather than the tradition FICO score, to assess consumer creditworthiness. The continuing improvement of its platform, coupled with the fact that more lending partners are jumping on board than ever, could foretell a road to recovery and long-term growth for Upstart once economic conditions improve.
