Long-term investors recognize the benefits of a buy-and-hold strategy. The key to earning good returns is to buy good growth stocks and hold them while ignoring short-term headwinds. While 2022 was hard on most stocks, this year seems to be going pretty well for these two growth stocks.
Vertex Pharmaceuticals (VRTX 1.02%) and Airbnb (ABNB 1.36%) are two hot stocks at the moment that could be good long-term investments.
The bull case for Vertex Pharmaceuticals
Vertex Pharmaceuticals is a biotech company known for its cystic fibrosis (CF) drugs, which have been a huge success. These drugs could be a long-term growth driver for the company.
Trikafta is Vertex's best-selling CF treatment right now. That drug alone generated $7.6 billion in revenue in 2022, out of a total product revenue of $8.9 billion.
The company's bottom line increased 53% year over year to $3.8 billion in 2022. Its recent first-quarter results attest to its ongoing strength. Trikafta contributed $2.09 billion to the total product revenue of $2.3 billion.
Management expects total revenue from CF products to be in the $9.5 billion to $9.7 billion range in 2023. It continues to invest heavily in research and development (R&D), which totaled $742 million in Q1.
CF drugs currently account for 100% of Vertex's revenue. With few competitors and with AbbVie discontinuing its CF program, Vertex has a good chance of continuing to dominate the CF platform.
But Vertex's management acknowledges the risks of relying on a single product to thrive in this cut-throat industry. The company is diversifying its product portfolio. It recently completed regulatory submissions for exa-cel, a gene therapy developed with partner CRISPR Therapeutics to treat both beta-thalassemia and sickle cell disease. Vertex could have a blockbuster product on the market very soon if exa-cel is approved.
Vertex also has a licensing agreement to use CRISPR's advanced gene-editing technology (CRISPR-Cas9) to develop a product for type 1 diabetes (T1D). Once these drugs hit the market, Vertex's revenue could skyrocket. Vertex's robust drug pipeline has the potential to push it to being a bigger and better-diversified business in the next decade.
Biotech firms are risky. They may experience losses until they have a successful product on the market. Vertex had a healthy cash balance of $11.5 billion at the end of Q1, which could be used to fuel new drug development.
Vertex has a strong cash balance and is profitable while continuing to invest heavily in R&D -- a sign of a healthy company. Vertex's shares are reasonably valued at 23 times forward earnings estimates, given the company's growth and long-term prospects.
The bull case for Airbnb
Airbnb, a vacation rental company, is giving some of the best names in the hotel industry a tough fight by rapidly increasing its revenue and operating margins over the last year.
It is an online platform acting as a link between travelers and hosts who want to rent out their homes or other properties. The company has an advantage over its competitors because it allows travelers to stay in remote and unusual locations. Most hotels will not do business in such areas because it appears unprofitable to them.
Despite high inflation which affected consumers' wallets, Airbnb had a fantastic 2022, with revenue increasing 40% year over year to $8.4 billion. It also marked Airbnb's first profitable year, with a GAAP net income of $1.9 billion.
Airbnb continues to reap the rewards from the flexible and remote work culture that emerged during the pandemic's height. As a result, in the fourth quarter, the company launched a new initiative called Airbnb-Friendly Apartments to help long-term renters locate apartments that they can part-time host on Airbnb. The number of friendly apartment buildings increased from 175 in 30 U.S. markets to 250 in its most recent first quarter. Management intends to introduce this concept to Europe, Latin America, and Asia soon.
The company also reported a profitable first quarter, with GAAP net income of $117 million, a boost of $136 million over the previous year's quarter. Its total revenue of $1.8 billion in Q1 rose by 20% year over year.
Airbnb's unique business model could help it thrive in this rapidly growing travel and tourism industry, whose revenue could reach $854 billion in 2023, according to estimates. Airbnb has a market share of around 20%, with plenty of room to grow in the coming years. It is also financially secure enough to carry out expansion plans. At the end of the first quarter, it had $8.1 billion in cash and cash equivalents and $1.6 billion in free cash flow.
Consistent revenue and profits, a strong balance sheet, and great long-term prospects make Airbnb an excellent consumer stock to buy and hold for the long term.
