Don't believe the adage to "sell in May and go away." Buying stocks can still be a smart move, especially if you're a long-term investor.
Three Motley Fool contributors have identified stocks they think are no-brainers to buy in May. Here's why they picked Eli Lilly (LLY -0.14%), Pfizer (PFE -0.97%), and Vertex Pharmaceuticals (VRTX 1.04%).
It's always a good time to buy this stock
Prosper Junior Bakiny (Eli Lilly): What makes a stock a no-brainer? Excellent financial results, a competitive advantage, or a long runway for growth? The answer is all of those things and more. And Eli Lilly, one of the world's largest healthcare companies, is outstanding in all three categories. In the first quarter, the company's revenue grew by 26% year over year to $8.8 billion, a fantastic performance for a pharmaceutical giant.
On the bottom line, the drugmaker's adjusted earnings per share (EPS) landed at $2.58, 59% higher than the year-ago period. Analysts expect Eli Lilly's EPS to grow by an average 50% annually over the next five years. What about the company's competitive advantage? Eli Lilly is one of the leading experts in developing diabetes and obesity medicines. It has a long track record of success in this area. Its most important product, tirzepatide, first earned approval in 2022.
It will benefit from patent protection well into the 2030s and significantly contribute to Eli Lilly's top-line growth. That also highlights the growth opportunities available to Eli Lilly. Tirzepatide is indicated to treat diabetes and obesity, with the latter market expected to skyrocket. Eli Lilly's lineup extends far beyond this one product. The company's pipeline is equally exciting. That's why it continues to crush the market but is far from having hit a ceiling. There is plenty of upside left for Eli Lilly, which makes it a great stock to buy in May.
A deeply underrated and undervalued stock
David Jagielski (Pfizer): The one healthcare stock that I wouldn't hesitate to buy this month is Pfizer. The stock is incredibly cheap, it pays a dividend, and it's still one of the safest healthcare investments you can own. Whether investors are overly bearish because of the lack of growth it's expecting this year or just being overly punitive on the stock because of waning vaccine demand is irrelevant; investors can get some excellent value by buying the stock right now.
There are multiple metrics that help to highlight what kind of a deal Pfizer's stock is. It's trading at 12 times its estimated future profit and 1.7 times its book value, and its price/earnings-to-growth (PEG) ratio is well below 1. Although investors are right to discount the stock given future uncertainty and the patent cliffs some of its top drugs are facing in the years ahead, the selloff has become extreme; Pfizer's stock is trading at levels it hasn't been at in more than a decade.
This truly could be a once-in-a-decade buying opportunity for investors. Pfizer is expecting minimal revenue growth this year but through acquisitions, including its purchase of Seagen last year and developing its pipeline, it expects to add $25 billion in annual new product sales by the end of the decade.
It may not be an easy path forward for the healthcare company, but given the significantly reduced price tag the stock trades at, it's easy to justify loading up on Pfizer's shares today. And as a bonus to the potential upside, the stock also pays a dividend that yields 6.2%.
A monopoly plus huge new markets potentially on the way
Keith Speights (Vertex Pharmaceuticals): Only one company markets drugs that treat the underlying cause of cystic fibrosis (CF), a rare genetic disease. That company is Vertex Pharmaceuticals. Vertex should have plenty of growth in the CF indication, especially with the company planning to file for regulatory approvals this summer for what could be its most powerful CF therapy yet.
However, as lucrative as Vertex's monopoly in CF is, I'm even more excited about the huge new markets that could potentially be on the way. The big biotech already has an approved product in two of those markets. Gene-editing therapy Casgevy is a one-and-done functional cure for sickle cell disease and transfusion-dependent beta-thalassemia.
Another massive market could open up to Vertex soon. The company recently submitted the first module of its rolling U.S. regulatory submission of suzetrigine (VX-548) in treating acute pain. It expects to complete this filing by the end of the second quarter of 2024. Acute pain is a multibillion-dollar market with significant unmet need. Suzetrigine should have major commercial potential filling the gap between safe but less effective anti-inflammatory medications and highly addictive opioids.
Looking a little farther down the road, Vertex has a huge opportunity with inaxaplin in treating APOL1-mediated kidney disease (AMKD). There's currently no approved therapy for treating the underlying cause of AMKD. The disease affects around 100,000 patients worldwide compared to an estimated 92,000 CF patients. Vertex is evaluating inaxaplin in a phase 3 clinical study.
Want more? Vertex plans to acquire Alpine Immune Sciences for around $4.9 billion. This deal will bring povetacicept into Vertex's pipeline. Alpine is on track to advance the experimental therapy into a phase 3 study in the second half of this year targeting IgA nephropathy, a kidney disease that affects 130,000 patients in the U.S. Like AMKD, there are no approved therapies treating the underlying cause of IgA nephropathy.
Vertex could have five new multibillion-dollar therapies within the next few years -- and we're just talking about its recently approved and late-stage programs. The big biotech's pipeline also features several promising early stage programs, notably including a potential cure for type 1 diabetes.
