Warren Buffett famously said that he and his investing managers "attempt to be fearful when others are greedy, and to be greedy only when others are fearful." With the stock market near a record high, many investors are a lot greedier than they are fearful right now. Following Buffett's maxim, it's time for prudent investors to be fearful.
But does that mean you shouldn't buy any stocks? I don't think so. After all, Buffett's Berkshire Hathaway has continued to buy a few stocks despite being a net seller of stocks for 11 consecutive quarters. However, like the Oracle of Omaha, you'll want to be smart about which stocks you do purchase in a market that's arguably priced for perfection.
What's the smartest growth stock to buy with $500 right now? My vote goes to Vertex Pharmaceuticals (VRTX 1.78%).
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A perhaps surprising safe-haven stock
One key reason I like Vertex is that I view it as something of a safe-haven stock. That might be surprising, considering that biotech stocks are typically anything but safe. However, Vertex isn't your run-of-the-mill biotech stock.
It helps enormously that Vertex enjoys a virtual monopoly in treating the underlying cause of the rare genetic disease cystic fibrosis (CF). There are only four approved therapies that correct defective CFTR proteins that cause CF. Vertex sells all of them. What's more, the company's nearest competition is only in phase 2 clinical studies. That means Vertex has a massive head start on rivals.
If the economy falters, many publicly traded companies will feel the impact as their revenue and profits slip. Not Vertex. Physicians won't stop prescribing its products. Neither will patients stop taking them.
I mentioned previously that the overall market could be viewed as priced for perfection. That isn't the case with Vertex, though. Its shares trade at a forward price-to-earnings ratio under 21 -- lower than the S&P 500's (SNPINDEX: ^GSPC) forward earnings multiple of roughly 23. More importantly, Vertex's growth prospects make its valuation even more attractive. The stock's low price-to-earnings-to-growth (PEG) ratio of 0.58 underscores this point.
Tremendous growth could be on the way
Speaking of growth, Vertex could have a lot on the way. I've only focused on the company's CF franchise so far, but Vertex has two other approved therapies that have blockbuster potential.
One is Casgevy, the first CRISPR gene-editing therapy on the market. It treats (and, for many patients, cures) sickle cell disease and transfusion-dependent beta-thalassemia, both of which are rare genetic blood disorders.
I'm more excited, though, about the prospects for Journavx. In January 2025, it became the first new class of pain medication approved in the U.S. in over 20 years. Journavx isn't an opioid. The drug is both safe and effective at treating acute pain.
Vertex's pipeline provides further reason to be enthusiastic. The company expects to file for global regulatory approvals for its islet cell therapy zimislecel next year in treating severe type 1 diabetes. It also hopes to file for accelerated approval in the U.S. of povetacicept in treating IgA nephropathy, a chronic kidney disease.
Those aren't Vertex's only late-stage programs, either. The big biotech innovator is pursuing another indication for Journavx in treating diabetic peripheral neuropathy (DPN). It's evaluating povetacicept as a potential treatment for primary membranous nephropathy (pMN). Vertex also has a promising candidate, inaxaplin, targeting APOL1-mediated kidney disease (AMKD).
A risk-reward proposition investors should like
I won't pretend that Vertex doesn't face risks. There are significant inherent risks associated with the drug development process. The company's pipeline programs could flop. However, I believe that this stock offers a risk-reward proposition that investors should like.
Every indication targeted by Vertex's late-stage candidates affects more patients than CF. For example, IgA nephropathy affects around 300,000 patients in the U.S. and Europe, compared to roughly 109,000 CF patients worldwide. AMKD affects 250,000 patients, while pMN's estimated patient population is 150,000.
Vertex doesn't need to be successful in every area to still generate robust growth over the next decade. But if all of its phase 3 programs do eventually win regulatory approvals (which is quite possible), the company's growth will be exceptionally strong.
