One "Magnificent Seven" stock that isn't looking so magnificent these days is Tesla (TSLA -1.22%). Shares of the electric vehicle (EV) maker are down around 30% this year as price cuts for its vehicles have resulted in lower margins for the business, and concerns about rising competition have investors doubting whether the premium the stock was trading at was truly warranted.
It can be a risky time to invest in Tesla given all the uncertainties of the EV market, especially as more competitors enter the field. Even now, at close to 60 times its expected future earnings, it may still not look cheap.
Instead of trying to catch a falling knife in Tesla, investors may be better off buying shares of a lesser-known company, but with a more promising growth trajectory: Vertex Pharmaceuticals (VRTX -0.60%).
NASDAQ: VRTX
Key Data Points
What makes Vertex Pharmaceuticals magnificent?
Vertex Pharmaceuticals is an exciting healthcare company to invest in. The company has grown its revenue from $6.2 billion in 2020 to just under $9.9 billion this past year. And what's more impressive is that amid that growth, it has been able to maintain a very healthy profit margin. In 2023, its net income totaled $3.6 billion, which was 37% of its top line.
The company's revenue centers around its cystic fibrosis (CF) products, in particular, the Trikafta/Kaftrio brand, which brought in $8.9 billion in revenue last year. CF revenue has been slowing down, but that doesn't mean Vertex's growth opportunities are diminishing. In fact, the company may be on the cusp of even more growth in the future.
The Food and Drug Administration (FDA) recently approved a gene therapy Vertex has been developing with CRISPR Therapeutics, Casgevy, as a treatment for sickle cell disease and transfusion-dependent beta thalassemia. At its peak, it could generate more than $2 billion in sales.
Another growth catalyst involves Vertex's non-opioid pain medication, VX-548. The company plans to file for the treatment's approval later this year. At its peak, this could be another blockbuster drug for Vertex, with peak annual sales potentially as high as $5 billion.
With such magnificent potential ahead, Vertex could be due to rise higher. And its modest valuation may sweeten the deal for growth investors today.
Vertex stock isn't expensive
Despite the encouraging outlook for Vertex's future and the recent approval of Casgevy, shares of the healthcare company are up less than 2% this year. As investors seem to have been focused on artificial intelligence (AI) stocks, many may have been looking past a fantastic stock in Vertex.
But that's good news if you're planning to buy it today. Given the opportunities the business possesses over the long run, the market doesn't seem to value Vertex that high. At 25 times its expected future earnings (based on analyst projections), the stock has a higher earnings multiple than The Health Care Select Sector SPDR Fund (19), a fairly good representation of the healthcare universe, but given its strong growth potential, Vertex is worth more of a premium than the average healthcare stock.
And when looking at the price-to-earnings-growth ratio, more commonly known as PEG, Vertex is at a multiple of just 0.6. The lower the PEG, the better value the stock possesses, as it factors in analyst expectations of future-earnings growth. With a PEG of less than one, Vertex looks like a cheap buy.
Is Vertex stock a buy?
Vertex looks like a sleepy stock to own right now. While AI may be captivating many growth investors today, Vertex may offer better bang for your buck. The company's long-term opportunities are plentiful and with an already strong business, this is one of the safest and best healthcare companies you can invest in right now.
