Some investors are staying away from the market right now due to the volatility stocks have experienced this year and the uncertain near-term economic outlook. Even with these issues, though, stocks are likely to produce superior returns to most other assets over the next decade, as they have consistently done in the past.
Moreover, when things are erratic, it can be a wise strategy to invest in companies that are positioned to perform well over the long term. Two great examples are Berkshire Hathaway (BRK.A -0.02%) (BRK.B -0.04%) and Vertex Pharmaceuticals (VRTX -1.65%).
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1. Berkshire Hathaway
Warren Buffett's recent announcement that he would step down from his longtime role as the CEO of Berkshire Hathaway by the end of this year will almost certainly come down as one of the most talked-about pieces of news on Wall Street this year. In the wake of that leadership change, some investors may decide to steer clear of the stock. After all, it was Buffett who led the conglomerate to market-crushing returns over the decades, not Greg Abel, his chosen successor.
Further, Buffett is leaving at an unsteady time economically. Corporations are facing a rapidly shifting global trade environment. Macroeconomic troubles appear likely to take a toll on many companies, even those as strong as Berkshire Hathaway. Can Abel successfully take the reins of the conglomerate, especially at a time like this?
In my view, the answer is yes. Buffett might be irreplaceable, but he leaves behind an incredibly robust and diversified business. Between Berkshire Hathaway's several dozen subsidiaries across an array of sectors and industries, its impressive stock portfolio, and its massive cash stockpile, it's positioned to handle severe economic shocks better than most companies.
Not all of the company's businesses will be affected equally by macro turbulence. Some might thrive as others suffer -- it will average out, at least somewhat. Berkshire Hathaway might not come out of a recession (if one is on the way) completely unscathed, but it will come out on solid footing. And regarding the pending change in management, Buffett did not pick Abel out of a hat. As a top executive of the conglomerate, Abel has soaked up Buffett's investment philosophy, and he has been capably overseeing a large portion of the company for years.
Nor will Abel be doing the job alone, any more than Buffett did it by himself. Many of Berkshire Hathaway's executives have been with the company for a long time and have contributed significantly to it achieving its current status as one of the few corporations with a trillion-dollar-plus market cap. The stock should continue to deliver superior returns in the long run under new management. That's why it's still worth investing in today.
2. Vertex Pharmaceuticals
Vertex Pharmaceuticals' shares recently plunged after it announced its fiscal second-quarter results. Those were unimpressive, partly due to a non-cash impairment charge it took relating to an investigational medicine it is no longer pursuing, and partly due to the illegal sales of knock-off versions of its patented drugs in Russia, which took a slice out of its total revenues. However, these are relatively minor issues, at least when viewed in the broader context.
Vertex remains the undisputed leader in cystic fibrosis therapies. This rare lung disease only affects about 94,000 patients in Vertex's core markets of North America, Europe, and Australia. But since it sells the only medicines that target the underlying causes of the condition, Vertex has substantial pricing power. That's why revenue and earnings have consistently increased at a good clip over the past decade, and there's reason to expect more growth to come.
Cystic fibrosis patients now live longer than they once did, partly thanks to Vertex's breakthroughs. Unfortunately, they still need constant care. Therefore, its products continue to be in demand among these populations. Furthermore, Vertex is seeking to expand into new territories and develop more effective medicines, particularly for patients who would not benefit from its current treatments.
Vertex's core franchise can still experience significant growth. Even if another company succeeds in developing competing cystic fibrosis therapies, the biotech's first-mover advantage and its relationship with patients, physicians, and third-party payers give it a leg up. Vertex has also expanded its portfolio with the approval of products such as Journavx for acute pain and Casgevy for beta-thalassemia and sickle cell disease.
Its pipeline should yield more clinical and regulatory wins within the next two years. Vertex is an innovative biotech company with an incredibly strong underlying business. Beyond the company's dominance in cystic fibrosis, that's the core reason to buy the stock. It should deliver excellent results over the long term.
