Stag Industrial (STAG -0.17%) and Vertex Pharmaceuticals (VRTX -0.06%) are off to a good start this year, and some industry tailwinds look to really boost shares in the coming years. Stag, which rents out warehouse space to commercial tenants, is benefiting from the reshoring trend. Vertex, already a leader in cystic fibrosis treatment, is on the tip of a gene-editing revolution.
Let's take a closer look at why these two potentially explosive stocks are buy candidates in May.
1. Stag Industrial delivers every month
Stag is a real estate investment trust (REIT) that specializes in renting out single-tenant industrial properties with triple-net leases. As of Dec. 31, it owned 562 properties across 40 states. Its shares are up more than 7% this year. And thanks to long-term macro trends, I see continued growth for this stock which just joined the S&P MidCap 400.
While office buildings are half-filled these days, the rental rates for warehouses, particularly those connected with e-commerce companies, are booming.
Businesses that struggled with supply chain issues during the pandemic have increasingly returned at least some of their manufacturing (effectively reshoring it) to the United States. According to the Kearney Reshoring Index, last year was the first time since 2019 that domestic manufacturing growth outpaced import growth from Asian countries. The survey also found that this year, 96% of U.S. CEOs are looking at reshoring their operations, have decided to reshore, or already have done so, compared to 78% in 2022. All that increased production back in the U.S. will require additional storage space for what's made.
Those same concerns about supply chain disruptions also caused e-commerce companies to increase their storage space to avoid running out of in-demand products. Take a look at Stag's tenant list and you can see why I have confidence in the company: It includes Amazon, FedEx, and third-party logistics company Kenco, all of which are part of the e-commerce boom. That also explains the company's occupancy rate, which was 97.6% as of March 31.
One of the benefits of owning the stock is its monthly dividend, which delivers a current yield of around 4.4%, much more than twice the S&P 500's average dividend yield of 1.7%. It has raised its monthly dividend for the past 12 years, including a tiny boost this year to $0.1225 per monthly share. Thanks to strong, consistent cash flow, the payout ratio of 79.6% is sustainable.
STAG Funds from Operations (FFO) (Annual) data by YCharts.
In the first quarter, the company reported per-share funds from operations (FFO) of $0.55, up 3.8% year over year, while revenue was $173.3 million, up 9% over the same period last year. Over the past decade, it has increased annual revenue and annual FFO by triple-digit percentages.
2. Vertex could go supersonic
Vertex Pharmaceuticals' share price is up more than 19% this year, and there's plenty of opportunity for the stock to really soar this year.
The biotech company, which is a leading player in cystic fibrosis (CF) therapies, has steadily grown its revenue and net income. Over the past decade, it has boosted annual revenue by 1,160% and annual net income by nearly 260%. That growth carried over in the company's first quarter earnings, which it reported May 1.
Vertex had strong sales of Trikafta/Kaftrio, a triple-combination therapy approved to treat CF patients age 2 and older with specific genetic mutations. This helped increase quarterly revenue by 13% year over year, to $2.37 billion.
Net income was down by 8%, to $700 million, but that's because the company has been spending big in preparation for what may be its biggest launch: exa-cel, a one-time cell therapy to treat transfusion-dependent beta-thalassemia (TDT) and sickle cell disease (SCD). Vertex developed exa-cel in collaboration with CRISPR Therapeutics. The two companies submitted their rolling biologics license application (BLA) in early April and are waiting to hear from the Food and Drug Administration (FDA).
VRTX Revenue (Annual) data by YCharts.
The drug is a CRISPR/Cas9 ex vivo therapy that increases levels of fetal hemoglobin, which carries oxygen more efficiently than adult hemoglobin, particularly in SCD and in TDT patients who have abnormal hemoglobin. Based on its strong clinical results, exa-cel is likely to be approved and it could easily be worth $7 billion a year to the company in revenue, analysts said. One report, by the Institute for Clinical and Economic Review (ICER), said the therapy could easily justify a charge of $1.9 million per patient because of how much it could save patients in transfusions and hospitalizations over the course of their lives.
The company has seven cystic fibrosis programs in its pipeline. Even if those and exa-cel were all the company had to offer, that would probably be enough.
But Vertex also has other promising therapies. Non-opioid painkiller VX-548 outperformed a placebo in phase 2 trials for two types of postsurgical pain. And VX-147 is being tested in late-stage trials to treat APOL1-mediated kidney disease.
