After a down 2022, growth stocks are making a big comeback this year. The S&P 500 Growth index is up more than 21% this year, while the S&P 500 Value index is up just a little more than 13%. Growth stocks have the potential to boost earnings more quickly than typical stocks, which provides a nice hedge for investors against inflation.
Even though Eli Lilly (LLY 1.67%), Vertex Therapeutics (VRTX 1.76%), Royal Caribbean Cruises (RCL 5.81%), and Stag Industrial (STAG 0.36%) are already all up 16% or more so far this year, each should benefit from macrotrends that will continue to drive revenue and profits.
NYSE: LLY
Key Data Points
Eli Lilly is cashing in on diabetes, obesity therapies
Pharmaceutical giant Eli Lilly is experiencing huge growth in sales for its diabetes drugs, especially type-2 diabetes medication Mounjaro (tirzepatide), which is likely to be approved by the U.S. Food and Drug Administration (FDA) as a weight-loss drug. In the first quarter, excluding COVID-19 therapies, revenue was up 10%, thanks mainly to improved sales of diabetes therapies Mounjaro, Trulicity, and Jardiance.
Obese patients, given Mounjaro over 72 weeks, lost as much as 22.5% of their body weight, a number that dwarfs any other approved weight-loss medication. Some patients are already using the therapy off-label for that purpose, and the FDA has given Mounjaro a Fast Track Designation as a weight-loss therapy. The new indication for the drug could be approved later this year.
Lilly also just added to its weight-loss stable. It announced on July 14 that it plans to purchase Versanis Bio, a private company whose lead pipeline candidate is bimagrumab, an obesity treatment, for $1.9 billion.
The emphasis on weight loss therapies is driven by their potential. According to GlobalData, the market for obesity treatments in the U.S., France, Germany, Italy, Spain, and the United Kingdom is expected to grow from $2.4 billion in 2021 to $37.1 billion by 2031.
NASDAQ: VRTX
Key Data Points
Vertex Therapeutics has excellent potential
Vertex Therapeutics has grown yearly earnings per share (EPS) by 674% over the past decade, thanks to its cystic fibrosis (CF) therapy dominance. The biotech company reported Q1 revenue of $2.37 billion, up 13% year over year. This was led primarily by CF drug Trikafta/Kaftrio, which had $2.1 billion in sales, up 19% over the same period last year.
Vertex has three other therapies in the wings that could be just as big. The company's collaboration with CRISPR Therapeutics on exa-cel has shown it has potential as a cure for genetic blood disorders transfusion-dependent beta thalassemia and sickle cell disease. The companies completed their regulatory submission for the cell therapy earlier this year in the U.S., Europe, and the U.K. The Institute for Clinical and Economic Review (ICER) recently said exa-cel would be cost-effective compared to current therapies, even at $2 million per dose.
The company's next-gen CF drug, Vanzacaftor triple, is in multiple phase 3 studies that are expected to be completed by the end of this year. Non-opioid pain therapy VX-548 is also in several phase 3 trials, and Vertex said it expects to complete them by early next year.
NYSE: RCL
Key Data Points
Royal Caribbean's comeback is on the horizon
Just a few years ago, Royal Caribbean and other cruise-line stocks were dead in the water thanks to COVID-19-related shutdowns and travel restrictions. The company's financials have come roaring back. After reporting annual adjusted EPS losses of $19.19 in 2021 and $7.50 in EPS losses in 2022, the company recently said it expects positive adjusted EPS of between $4.40 to $4.80 this year.
In Q1, Royal Caribbean reported revenue of $2.9 billion, compared to $1.1 billion in the same period a year ago. While the company still had an EPS loss of $0.19, that's a big change compared to the $4.58 in EPS loss it posted in Q1 2022. It's hard not to like that trend.
The only concern going forward for Royal Caribbean is that it's taken on quite a bit of debt during the pandemic. In Q1, the company reported it had total debt of $21.1 billion, down from a year ago, but still a lot to carry. That much debt will limit the company's flexibility. But considering the direction that bookings are taking, with a load factor (occupancy) of 102% in Q1, at higher pricing than in pre-COVID 2019, Royal Caribbean should be able to continue paying down its debt.
The debt hasn't kept Royal Caribbean from thinking big. The fleet of 64 ships now includes Icon of the Seas, the world's largest cruise ship by gross tonnage. The ship, the first of a fleet of Icon ships, has set a company record for bookings in its inaugural season. It has a capacity of 5,610 passengers and 2,350 crew members and begins its first season next January. The excitement around the ship should help raise the company's profile at a time when people are more willing to spend on experiences rather than products.
NYSE: STAG
Key Data Points
Stag Industrial is rising with e-commerce
Stag Industrial is a real estate investment trust (REIT) that specializes in commercial warehouses, which are in increasing demand as e-commerce shows no signs of slowing down. As of March 31, Stag owned 561 buildings across 41 U.S. states. On top of that, the international supply chain concerns that hurt some businesses in recent years have led many companies to focus on re-shoring and near-shoring, two patterns that drive the need for more domestic warehouse space.
This demand has meant that occupancy rates are high -- 97.6% as of the last quarter -- and Stag has been able to increase rents. That has led to increased revenue. In Q1, the company said it had $173.5 million in revenue, up 9% year over year. Net income isn't a good barometer for measuring profitability in a REIT, but funds from operation (FFO) per share is. In Q1, Stag said it had FFO per share of $0.55, compared to FFO per share of $0.53 in the same period a year ago.
The company also pays out a monthly dividend, a rarity. That attracts investors, particularly with the yield of around 3.55%, more than double the S&P 500 average of 1.66%. The company raised the dividend by 0.7% to $0.1225 this year, and the dividend has an FFO payout ratio of 89%, well within the safety guidelines for a REIT.
