Everyone's portfolio should include a couple of monster stocks. What do I mean by "monster"? I'm talking about companies that have a solid earnings track record and offer bright prospects down the road too. They're often leaders in their industries.
You'll find these players in any sector, but today, I'm going to focus on healthcare. In fact, I'm going to highlight one of the world's top biotech companies and one of the top pharmaceutical companies. I would buy shares of these two monster stocks without any hesitation. Let's find out who these players are -- and discover why you want them in your portfolio now and for the long term.
1. Vertex Pharmaceuticals
Vertex Pharmaceuticals (VRTX -0.06%) brings in billions of dollars annually thanks to its cystic fibrosis (CF) treatments. The company is the global leader in this area -- and expects to stay in this top spot throughout this decade and beyond.
Vertex's Trikafta has the ability to treat 90% of CF patients today. And the company is working on a treatment to address the rest of the CF population that can't be treated by its current products. Vertex also is studying another candidate in pivotal trials that could even beat Trikafta. So, the CF portfolio is one you can count on.
And Vertex has grown the important measures of net income, free cash flow, and return on invested capital over time.
VRTX Net Income (Annual) data by YCharts
To make the investment case even better, Vertex is expanding into other treatment areas. And so far things are looking good. The company and partner CRISPR Therapeutics expect a decision on exa-cel, a one-time curative treatment for blood disorders, later this year for one indication -- and in March for a second indication. And Vertex is advancing on candidates for areas with major need such as pain management and type 1 diabetes.
Meanwhile, even after gains of 21% in the first half of this year, Vertex shares still look cheap. They're trading for only 24 times forward earnings estimates. This is a price I'd easily pay for a company that delivers on growth right now and has excellent long-term prospects.
2. Johnson & Johnson
Johnson & Johnson (JNJ -0.46%) is one of the world's biggest pharma companies. You may know it for products like Band-Aid bandages and Tylenol. But J&J actually is spinning off that unit this year into a separate entity called Kenvue. But don't worry -- this is a great move for J&J.
That's because J&J actually generates more revenue and growth from its two other units: pharmaceuticals and medtech. So, the separation will allow it to more easily devote its resources to these businesses. And it also should allow J&J to report stronger revenue growth.
J&J set a goal for $60 billion in revenue from its pharmaceuticals unit in 2025. That's up from $52 billion last year. Meanwhile, medtech may also see growth take off. J&J acquired heart pump company Abiomed last year, so its medtech division now has a dozen platforms with more than $1 billion in annual revenue.
You'll also like J&J for its dividend and divided growth. The company is a Dividend King, meaning it has lifted its dividend for at least 50 straight years. This suggests sharing success with shareholders is important to the company. So, we could expect this to continue. And, with $16 billion in free cash flow, J&J has the resources to keep the increases going.
Today, J&J trades for about 15 times forward earnings estimates, down from more than 18 about a year ago. This is a very reasonable entry point for J&J as we look back at its track record and forward to a potentially new era of growth ahead as it focuses on its two biggest businesses.
