Every investor wants to beat the market, but doing so is notoriously difficult. That's why many settle for matching the performance of some prominent index by buying the appropriate exchange-traded funds (ETFs).
However, it's possible to crush the market by investing in the right companies, although picking those out isn't always so simple. Novo Nordisk (NVO 0.84%) and DexCom (DXCM -9.90%) are two excellent stocks that could trounce the market in the next five years. Here's why.
1. Novo Nordisk
Novo Nordisk is the prominent Denmark-based drugmaker behind the famous GLP-1 diabetes medicine Ozempic. Last year, this brand became a household name, something that isn't that common for drugs. However, diabetes and obesity are severe worldwide problems and Novo Nordisk is one of the two undisputed leaders in this field. The biotech also markets Wegovy for weight loss.
These two therapies should help drive excellent top-line growth for Novo Nordisk in the next five years. Why? Because the anti-obesity drug market is projected to soar. While estimates vary, some analysts believe this space could reach $44 billion in sales by 2030. It was only $2.5 billion in 2022. These projections have attracted many competing drugmakers.
However, Novo Nordisk has a long and established track record of developing drugs in tangential areas and currently boasts one of the best-selling medicines in the field. The smart money is on the biotech to remain a leader in this niche. That's partly why investors bid up Novo Nordisk's shares significantly last year.
The company also reported excellent financial results throughout the year. Net sales for 2023 came in at 232.3 billion Danish kroner ($33.6 billion), an increase of 31% year over year. Novo Nordisk's net income jumped by 51% to 83.7 billion kroner ($12.1 billion).
These are fantastic results for a biotech giant, and there is more where that came from in the years ahead. Novo Nordisk will likely keep earning new approvals and key label expansions. The biotech is awaiting approval from regulatory authorities worldwide for icodec, a once-weekly insulin product. The company is also going after the massive non-alcoholic fatty liver disease market with Ozempic, not to mention the medicine showed promise in treating kidney disease in diabetes patients.
That means stronger revenue for the already high-flying therapy down the line. Novo Nordisk is extending beyond diabetes and obesity with several promising candidates in Alzheimer's disease, various rare ailments, and more. The biotech's overall prospects look incredibly strong. That's why Novo Nordisk is likely to trounce the market.
2. DexCom
DexCom, the medical device specialist behind the G6 continuous glucose monitoring (CGM) system, did not perform particularly well on the stock market last year. That's partly because of Novo Nordisk. DexCom's G6 helps diabetes patients keep track of their blood glucose levels. With the increase in popularity of weight-loss medicines, many investors feared that this development would harm companies like DexCom.
However, management's response amounted to a shrug. As CEO Kevin Sayer said last year: "Data continues to demonstrate that clinicians prefer to use CGM together with these drugs to drive the best possible outcomes. In fact, we shared claims data this quarter that showed prescribing trends for CGM increase once someone has initiated GLP-1 therapy, as clinicians favor DexCom for its protective features and ability to support lifestyle management."
In other words, anti-diabetes medicines won't lead to lower demand for DexCom's devices. If anything, the opposite will happen.
DexCom has yet to release its fourth-quarter and full-year 2023 earnings results, but it gave investors a preview. It expects revenue for the year to increase 24% to $3.62 billion -- a solid result for the medical device expert. There is plenty more growth potential for DexCom. As the company's main competitor in the CGM market, Abbott Laboratories, recently argued, more than half a billion adults worldwide now have diabetes, with just about 1% of them using CGM technology.
Why should they switch? Because CGM devices can make measurements as often as every five minutes, in the case of the G6. The alternative is a blood glucose meter (BGM) that uses painful fingersticks and is manually operated. To make nearly as many measurements with a BGM as CGMs make possible would require patients to do practically nothing else all day. That's one reason CGMs are linked to better health outcomes for diabetes patients.
DexCom does business primarily in the U.S. and several other countries, but it currently doesn't have access to the vast population of diabetes patients in developing nations. Still, even within its geographies, it has plenty of growth prospects. In the U.S., one of the more advanced markets, DexCom estimates that CGM penetration has continued to trail the population of patients who benefit from third-party reimbursement for the technology by a mile.
There are good reasons to think reimbursement trends will continue to be positive, especially as the diabetes epidemic worsens. Meanwhile, DexCom will continue developing newer and better devices, like its most recent G7. DexCom did not do well last year, but the company has trounced the market in the past five years and can do it again.
