My Hands-Down Favorite Stock to Buy in September

Believe it or not, we’re about to be down to the final four months of 2022. Many investors will probably be glad to move past what’s been a dismal year for the stock market.

But I don’t think investors have to wait until the new year to find great stocks. Here’s my hands-down favorite stock to buy in September.

Winners win

Vertex Pharmaceuticals (VRTX -0.09%) has stood out as a winner among a bunch of losers so far in 2022. The biotech stock has soared more than 30% year to date. It never dipped into negative territory while the overall market was plummeting.

High inflation and recession fears don’t matter much at all for Vertex. The company markets the only approved drugs that treat the underlying cause of rare genetic disease cystic fibrosis (CF). Physicians are going to prescribe these drugs and patients are going to take the drugs regardless of what happens with the economy. 

In addition to being insulated against these headwinds, Vertex has benefited from a lot of good news this year. The company secured additional reimbursement deals for top-selling CF drug Trikafta/Kaftrio. Its pipeline programs achieved significant milestones.

Most importantly, Vertex delivered great quarterly results. Revenue jumped 22% year over year in both the first and second quarters. Earnings more than doubled year over year in the first half of 2022. Vertex’s cash position increased by $1.7 billion from Dec. 31 2021 through the end of Q2. 

Huge opportunities ahead

Vertex wouldn’t be my favorite stock to buy in September only because of its past success, though. The company also has huge opportunities ahead.

There’s still plenty of room for growth in the CF market. Vertex simply needs to nail down additional reimbursement deals and expand its approvals of existing products to include younger age groups. Its closest rivals haven’t advanced beyond phase 2 clinical testing yet.

But Vertex isn’t resting on its laurels in CF. The company is evaluating a new triple-combination therapy that holds the potential to be even better than Trikafta. It’s also working with Moderna to develop a messenger RNA therapy that could help CF patients who can’t benefit from currently available drugs.

Vertex also plans to expand beyond CF. CEO Reshma Kewalramani noted in the Q2 conference call that the company’s pipeline includes four programs in clinical testing, each of which has a multibillion-dollar market opportunity.

Image source: Getty Images.

Within the next few months, Vertex and CRISPR Therapeutics should file for regulatory approvals of exa-cel in treating sickle cell disease and transfusion-dependent beta-thalassemia. If approved, exa-cel will be the first CRISPR gene-editing therapy on the market.

In addition to exa-cel and its CF triple-combo therapy, Vertex is evaluating two other experimental drugs in late-stage clinical studies. VX-147 targets APOL1-mediated kidney diseases, an indication with a larger patient population than CF has. VX-548 has tremendous potential as a non-opioid treatment for acute and neuropathic pain.

Vertex also thinks that it’s on track to develop a cure for type 1 diabetes(T1D). It has one program already in early-stage testing. In July, the company announced plans to acquire ViaCyte — a privately held biotech with a promising stem cell platform that should accelerate Vertex’s T1D efforts.

Have I mentioned the valuation?

There’s one other reason Vertex is my hands-down favorite pick for September. Its price-to-earnings-to-growth (PEG) ratio is only 0.43. That’s a dirt-cheap valuation.

Granted, PEG ratios can be off quite a bit since they rely on growth projections. It’s possible that Vertex’s growth won’t meet expectations if the company experiences some pipeline setbacks.

However, I think that Vertex’s continued growth in CF is practically a slam dunk. The probability of success with exa-cel appears to be very high. I like the prospects for VX-147 in APOL1-mediated kidney disease and VX-548 in acute and neuropathic pain based on overwhelmingly positive phase 2 results. Curing T1D is more of a long shot, but I’m cautiously optimistic about this program as well.

Investors could wait and see how some of these clinical programs progress before buying Vertex. My view, though, is that there’s no time like the present to buy a stock that presents such a compelling risk-reward proposition.

Keith Speights has positions in Vertex Pharmaceuticals. The Motley Fool has positions in and recommends CRISPR Therapeutics and Vertex Pharmaceuticals. The Motley Fool recommends Moderna Inc. The Motley Fool has a disclosure policy.