Don’t believe the saying “Sell in May and walk away.” Buying stocks can still be a smart move, especially if you are a long-term investor.
Three Motley Fool writers have identified stocks they think are a no-brainer in May. Here’s why they made their decision Eli Lilly (NYSE:LLY), Pfizer (NYSE:PFE)And Vertex Pharmaceuticals (NASDAQ:VRTX).
It’s always a good time to buy this stock
Prosper Junior Bakiny (Eli Lilly): What makes a stock a sure-fire success? Excellent financial results, a competitive advantage or a long growth perspective? The answer is all of that and more. And Eli Lilly, one of the world’s largest healthcare companies, scores highly in all three categories. In the first quarter, the company’s revenue rose 26% year over year to $8.8 billion, a fantastic performance for a pharmaceutical giant.
At the bottom line, the drugmaker’s adjusted earnings per share (EPS) were $2.58, up 59% from the year-ago period. Analysts expect Eli Lilly’s earnings per share to grow at an average annual rate of 50% over the next five years. What is the company’s competitive advantage? Eli Lilly is one of the leading experts in the development of drugs against diabetes and obesity. The company can look back on a long history of success in this area. Its main product, tirzepatide, received approval for the first time in 2022.
The company will benefit from patent protection well into the 2030s and contribute significantly to Eli Lilly’s sales growth. This also highlights the growth opportunities available to Eli Lilly. Tirzepatide is indicated for the treatment of diabetes and obesity, with the latter market expected to surge. Eli Lilly’s range goes far beyond this one product. The company’s pipeline is just as exciting. For this reason, the market continues to be squeezed, but the upper limit is still far from being reached. There’s still plenty of upside for Eli Lilly, making it a great stock to buy in May.
A deeply underestimated and undervalued stock
David Jagielski (Pfizer): The only healthcare stock I would buy without hesitation this month is Pfizer. The stock is incredibly cheap, it pays a dividend, and is still one of the safest healthcare investments you can own. Whether investors are overly pessimistic about the lack of growth they expect this year or whether they’re simply selling the stock too hard due to slowing demand for vaccines doesn’t matter. Investors can get excellent value by purchasing the stock now.
There are several metrics that illustrate what kind of business Pfizer stock represents. It trades at 12 times its estimated future earnings and 1.7 times its book value, and its price-to-earnings-growth (PEG) ratio is well below 1. However, investors are right to consider the stock given the future Uncertainty and the patent cliff The sell-off has become extreme in the top drugs that the country will face in the coming years. Pfizer shares are trading at levels never seen before more than a decade.
This could truly be a once-in-a-lifetime buying opportunity for investors. Pfizer expects minimal sales growth this year, but through acquisitions including its purchase of Seagen last year and developing its pipeline, the company expects to generate $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 discounted price at which the stock is trading, it’s easy to justify buying more Pfizer shares today. And as a bonus to the potential upside, the stock also pays a 6.2% dividend.
A monopoly and potentially huge new markets 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 is expected to see strong growth in the CF indication, especially as the company plans to file regulatory approvals for what could be its most powerful CF therapy this summer.
But as lucrative as Vertex’s CF monopoly is, I’m even more excited about the huge new markets that could potentially emerge. The large biotech company already has an approved product in two of these markets. Casgevy gene editing therapy is a one-time functional cure for sickle cell anemia and transfusion-dependent beta-thalassemia.
Another huge market could soon open up for Vertex. The company recently submitted the first module of its ongoing US regulatory filing for suzetrigine (VX-548) for the treatment of acute pain. This application is expected to be completed by the end of the second quarter of 2024. Acute pain is a multibillion-dollar market with significant unmet need. Suzetrigine is expected to have great commercial potential and bridge the gap between safe but less effective anti-inflammatory drugs and highly addictive opioids.
Looking a little further into the future, Vertex has a strong opportunity with inaxaplin in the treatment of APOL1-mediated kidney disease (AMKD). There is currently no approved therapy to treat the underlying cause of AMKD. The disease affects around 100,000 patients worldwide, compared to an estimated 92,000 CF patients. Vertex is testing inaxaplin in a phase 3 clinical trial.
Want more? Vertex is planning the takeover Alpine Immunology for around $4.9 billion. This deal adds povetacicept to Vertex’s pipeline. Alpine is on track to advance the experimental therapy into a Phase 3 trial targeting IgA nephropathy, a kidney disease that affects 130,000 patients in the U.S., in the second half of this year. Like AMKD, there are no approved therapies to treat the underlying cause of IgA nephropathy.
Vertex could bring five new multibillion-dollar therapies to market in the next few years—and we’re just talking about its recently approved and late-stage programs. The large biotech company’s pipeline also includes several promising early-stage programs, most notably a potential cure for type 1 diabetes.
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David Jagielski has no position in any of the stocks mentioned. Keith Speights has held positions at Pfizer and Vertex Pharmaceuticals. Prosper Junior Bakiny holds positions at Vertex Pharmaceuticals. The Motley Fool has positions in and recommends Pfizer and Vertex Pharmaceuticals. The Motley Fool has a disclosure policy.
“3 No-Brainer Stocks to Buy in May” was originally published by The Motley Fool