It’s a debate that’s almost as old as the stock market itself: Growth versus value — which is better? Since the end of the Great Recession, growth stocks have run circles around value stocks. That’s because historically low lending rates have allowed fast-paced companies to borrow cheaply to hire, innovate, and acquire…
However, it’s value stocks that have the edge over the long run. A Bank of America/Merrill Lynch report released in 2016 found that value stocks averaged an annual gain of 17% over a 90-year stretch (1926-2015), while growth stocks delivered an impressive, but nevertheless lower, 12.6% annualized return over the same time span.
What’s more, value stocks significantly outperformed growth stocks during the early stages of an economic recovery, which is where we’re at right now.
With this being said, there are three value stocks that have all the tools needed to make you richer in April, and well beyond.
Beyond just being profitable among a sea of unprofitable biotech companies, what allows Vertex to stand out is the company’s focus on treating cystic fibrosis (CF). CF is a genetic disease characterized by thick mucus production that can obstruct the lungs and pancreas of a patient. There aren’t any cures for CF, but Vertex has been able to develop multiple generations of gene-specific treatments that are improving the quality of life for CF patients.
Back in October 2019, the U.S. Food and Drug Administration (FDA) approved combination therapy Trikafta as a treatment for CF patients with the most common mutation, F508del. Around 90% of CF patients have this mutation. This approval came after Trikafta easily met its primary endpoint in late-stage trials of a statistically significant improvement in lung function, as measured by forced expiratory volume in one second. Further, it was approved five months ahead of its scheduled FDA review date.
How much of a hit has Trikafta been? In its first full-year on pharmacy shelves in 2020, it generated almost $3.9 billion in sales. Wall Street analysts believe it could hit $6 billion in peak annual revenue.
Vertex is also rolling in the dough. It ended last year with $6.66 billion in cash, cash equivalents, and marketable securities, and it’s generating considerable cash flow from its portfolio of CF products. It’s likely to go shopping over the next couple of years to diversify its portfolio beyond CF.
With a healthy double-digit growth rate and a price-to-earnings-growth ratio (PEG ratio) of well below 1, Vertex has all the look of a value stock worth buying.
Annaly Capital Management
The operating model for mortgage REITs might sound intimidating, but it’s really quite simple. These are companies that borrow money at lower short-term lending rates and buy assets that have higher long-term yields. The assets they buy are usually mortgage-backed securities (MBS). The point is to generate the highest long-term yield possible while paying the lowest borrowing rate imaginable. The difference between these two rates is known as the net interest margin (NIM), and the wider it is, the more profit companies like Annaly Capital Management are raking in.
What makes the current environment so attractive for mortgage REITs is that the yield curve is steepening. When the yield curve flattens out, the yields on long-term and short-term rates tighten. But when it expands, Annaly can often purchase MBSes with higher yields, thereby widening its NIM. It’ll also rely on leverage to pump-up its funds from operations.
Something else unique about Annaly Capital Management is that it…
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