We recently published a list Analyst Recommends 10 Best Stocks to Diversify Your Portfolio Away from Mega-Cap Tech and AI Stocks. Since Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) ranks 7th on the list, it deserves a deeper look.
Venu Krishna, Head of U.S. Equity Strategy & Global Equity Linked Strategies at Barclays, recently shared a basket of stocks he recommends offsetting the risks that come from market concentration in big tech stocks. In an interview with CNBC, Krishna emphasized that he remains inclined towards big tech stocks, but the important question he addressed is which stocks offer more value outside of the tech sector in the long term.
Krishna’s methodology to find some of the best stocks outside of the tech sector is simple: find out at what “core fundamental” metrics big tech stocks are “excelling” at and then “try to come close to that and create a portfolio which can give us that kind of exposure.” Through this methodology, Krishna says, he came up with a well-diversified portfolio of stocks that could act as a “hedge” against market concertation in big tech.
Krishna said he applied “liquidity filters” on the whole market to remove a “bunch of companies” and narrow down to stocks with strong growth and FCF multiples.
Despite him pointing out the concentration of gains problem, Venu Krishna believes the rise of big tech stocks is a “healthy trend” and some of the gains are now bifurcating to other sectors, too.
However Krishna said that over the past 18 months his portfolio of stocks has lagged behind the Big Tech, but outperformed equal-weighted S&P 500 and market cap-weighted S&P 500.
For this article, we took a look at Krishna’s latest basket of stocks to offset concentration in big tech risks and picked 10 stocks with the highest number of hedge fund investors. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX)
Number of Hedge Fund Investors: 62
Barclays head of US Equity Strategy Venu Krishna thinks Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) is one of the best stocks to offset the concentration in the market and to diversify your portfolio. Last month Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) posted solid Q1 results. The Boston-based biopharma company saw a 56% rise in adjusted EPS in the quarter on a YoY basis. Adjusted net income in the period came in at $1.24 billion, versus $794 million reported in the prior-year quarter. One of the biggest growth catalysts for the stock is Vanzacaftor, its treatment for cystic fibrosis patients. Early data shows the drug’s ability to improve lung function and sweat chloride levels. Analysts are also closely watching Vertex Pharmaceuticals Incorporated’s (NASDAQ:VRTX) pain management drug Suzetrigine and kidney disease drug Inaxaplin, both in late-stage development. Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) is also working on its type 1 diabetes treatment with VX-880, a smell cellderived, fully-differentiated islet cell therapy. Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) made headlines in April after it entered into a deal to acquire Alpine Immune Sciences, Inc. which makes protein-based immunotherapies, for $4.9 billion in cash
In 2024, Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) is expecting revenue in the range of $10.55 billion to $10.75 billion. The midpoint of this range would represent an 8% revenue growth on a YoY basis. Wall Street expects Vertex Pharmaceuticals Incorporated’s (NASDAQ:VRTX) EPS to rise 12% from last year, while 2025 and 2026 earnings growth are expected to come in at 8% and 12%, respectively. Based on strong growth catalyst and a healthy pipeline, the stock’s forward P/E of 29 is not outlandishly high and makes Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) a smart choice for long-term investors.
Aristotle Atlantic Core Equity Strategy stated the following regarding Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) in its fourth quarter 2023 investor letter:
“Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) develops drugs for treating cystic fibrosis, cancer, inflammatory bowel, autoimmune disease and neurological disorders. The biotechnology company has four commercial drugs used to treat cystic fibrosis. Vertex has other drugs in development, including additional cystic fibrosis treatments and medications addressing sickle cell disease, beta thalassemia, alpha-1 antitrypsin deficiency and pain.
Vertex is the global leader in treating cystic fibrosis and has additionally built a robust pipeline in several therapeutic areas. Late-stage studies in acute and neuropathic pain are expected to be another catalyst for the company. We believe Vertex’s valuation is attractive and at a discount relative to their 5-year historical average. Additionally, the company is well capitalized, with roughly $12.5 billion in net cash on its balance sheet.”
Overall, Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) ranks 7th on Insider Monkey’s list titled Analyst Recommends 10 Best Stocks to Diversify Your Portfolio Away from Mega-Cap Tech and AI Stocks. While we acknowledge the potential of Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX), our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.