The United States economy expanded at a 7% annual pace in the fourth quarter, as people increased their spending and businesses replenished their stockpile of goods following a decline in inventory to significantly low levels during the worst of the COVID-19 pandemic. Cross-national data shows that economic growth in the country has outperformed the growth of other comparable economies.
Russia’s invasion of Ukraine has caused oil and gas prices to skyrocket, but economists believe that at most this will shave off only a few tenths of a percentage point from the country’s GDP growth rate. The U.S. is expected to weather high prices as the economy strengthens.
Given this backdrop, we think fundamentally strong growth stocks Vertex Pharmaceuticals Incorporated (VRTX), Fair Isaac Corporation (FICO), Ralph Lauren Corporation (RL), and Exelixis, Inc. (EXEL) might be solid additions to one’s portfolio this month. These stocks have outpaced the broader S&P 500 index’s 8% decline year-to-date.
Vertex Pharmaceuticals Incorporated (VRTX)
Boston-based VRTX develops and commercializes therapies for treating cystic fibrosis, a condition that causes persistent lung infections. The company’s offerings include SYMDEKO/SYMKEVI, ORKAMBI, and KALYDECO therapies for treating patients with the disease.
On November 19, VRTX reported Spanish government approval for national reimbursement of KAFTRIO® (ivacaftor/tezacaftor/elexacaftor) in a combination regimen for treating cystic fibrosis in patients aged 12 years and older. And on January 11, VRTX announced that the European Commission had approved the label extension of KAFTRIO in a combination regimen with ivacaftor for patients between the ages of six and 11. These approvals should prove to be profitable for VRTX.
VRTX’s revenue has grown at a 34.8% CAGR over the past five years, while its EBITDA has grown at a 58% CAGR over the past three years. Its levered FCF has grown 24.4% over the past three years.
VRTX’s non-GAAP total revenues increased 27.4% year-over-year to $2.07 billion in its fiscal fourth quarter, ended December 31. Its non-GAAP net income and non-GAAP net income per common share came in at $865.90 million and $3.37, respectively, up 31.1% and 34.3% from the prior-year quarter. And its non-GAAP operating income rose 26.7% from the same period the prior year to $1.12 billion.
Analysts expect VRTX’s EPS to increase 16.8% year-over-year to $3.48 for the quarter ending March 2022. And the Street expects revenue to improve 25.4% from the prior-year quarter to $2.08 billion for the same quarter. In addition, VRTX has an impressive surprise earnings history; it has topped consensus EPS estimates in each of the trailing four quarters.
VRTX’s shares have gained 17.5% in price over the past three months to close yesterday’s trading session at $234.11. It has gained 6.6% year-to-date. It is currently trading above its 50-day and 200-day moving averages of $229.90 and $203.64, respectively.
VRTX’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which equates to Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
VRTX has an A grade for Quality and a B grade for Growth, Value, and Sentiment. In the 431-stock Biotech industry, it is ranked #1. To see the additional POWR Ratings for Momentum and Stability for VRTX, click here.
Click here to checkout our Healthcare Sector Report for 2022
Fair Isaac Corporation (FICO)
FICO is a developer of analytic, software, and data management services and products that enable businesses to automate, enhance and connect their decisions. The San Jose, Calif.-based company operates through the two broad segments of Score and Software.
On February 16, FICO announced a partnership agreement with Advanced Financial Solutions (AFS), a Bahrain-based risk, finance, and compliance software and consulting firm to sell and support the FICO Blaze Advisor® decision rules management system throughout the Middle East. This might stand to benefit the company.
On December 14, FICO declared that it had priced $550 million in additional notes of the same class as its outstanding $350 million issue of 4.000% senior notes due 2028. The company intends to use the net proceeds from the offering to repay outstanding debt under its existing revolving credit facility.
FICO’s EBIT has grown at a 33% CAGR over the past three years, while its EPS has grown at a 46.5% CAGR over the past three years. Its levered FCF has grown at a 49.1% CAGR over the past three years.
For its fiscal first quarter, ended December 31, FICO’s total revenues increased 3.2% year-over-year to $322.36 million. Its non-GAAP net income and non-GAAP EPS rose 25% and 35%, respectively, from the prior-year quarter to $101.93 million and $3.70. Its free cash flow improved 65.5% from the prior-year period to $123.99 million.
The Street’s $15.41 EPS estimate for its fiscal year 2022 reflects a 17.9% year-over-year rise, while the Street’s $1.38 billion revenue estimate for the same year represents a 4.5% improvement from the prior year. In addition, FICO has beaten consensus EPS estimates in each of the trailing four quarters.
FICO’s stock has gained 28.8% in price over the past three months and 13% year-to-date to close yesterday’s trading session at $490.00. It is currently trading above its 50-day and 200-day moving averages of $463.33 and $452.86, respectively.
It’s no surprise that FICO has an overall B rating, which translates to Buy in our POWR Rating system. FICO has a Quality grade of A and a Growth grade of B. It is ranked #22 out of 165 stocks in the Software – Application industry.
In addition to the POWR Rating grades we’ve stated above, one can see FICO ratings for Value, Momentum, Stability, and Sentiment here.
Click here to check out our Software Industry Report for 2022
Ralph Lauren Corporation (RL)
RL operates internationally as a designer, distributor, and seller of lifestyle products. The New York City company’s product offerings include men’s, women’s, and children’s clothing and accessories, home products, which include bed and bath lines, and fragrances.
On January 20, RL unveiled Intelligent Insulation, a sustainably minded temperature-responsive fabric that adapts to cold temperatures by expanding and creating a layer of insulation. The company announced that the fabric would be used to outfit Team USA for the Winter Games Opening Ceremonies. On January 13, RL announced the debut of the RLX CLARUS® Polo Shirt exclusively at the 2022 Australian Open Tennis Tournament. These new products might add to the company’s revenue stream.
On December 10, RL declared a regular quarterly dividend of $0.6875 per share on RL’s common stock, which was payable on January 7. This reflects the company’s ability to pay back its shareholders.
RL’s EPS has grown at a 7.9% CAGR over the past three years. Its total assets have grown at a 10.1% CAGR, and its levered FCF has grown at a 32.3% CAGR over the past three years.
For its fiscal third quarter, ended December 25, RL’s net revenues increased 26.7% year-over-year to $1.82 billion. Its adjusted net income came in at $218.10 million, while its adjusted net income per common share stood at $2.94, up 74.9% and 76% respectively, from the same period in the prior year.
The $2.35 consensus EPS estimate for its fiscal quarter ending June 30, 2022, indicates a 2.6% year-over-year increase. And the $1.44 billion consensus revenue estimate for the same quarter reflects a rise of 18.1% from the prior-year quarter. In addition, RL has topped consensus EPS estimates in each of the trailing four quarters.
The stock has gained 8.1% in price year-to-date and 13% over the past month to close yesterday’s trading session at $128.47. It is currently trading above its 50-day and 200-day moving averages of $118.74 and $118.76, respectively.
Under the POWR Ratings, RL has a Quality grade of A and a Growth and Sentiment grade of B. It is ranked #13 of the 66 stocks in the Fashion & Luxury industry. The industry is rated A.
Click here to see the additional POWR Ratings for RL (Value, Momentum, and Stability).
Exelixis, Inc. (EXEL)
San Francisco-based EXEL is a biotechnology company that is focused on oncology that develops and sells medicines to cure cancer. The company has research collaborations and license agreements with several notable pharmaceutical and biotech companies.
On January 6, EXEL and Iconic Therapeutics, Inc. announced that they had amended the terms of their May 2019 exclusive option and license agreement for XB002 (formerly ICON-2), a next-generation tissue factor (TF)-targeting antibody-drug conjugate (ADC). Michael Morrissey, Ph.D., President, and Chief Executive Officer, EXEL, stated, “Amending our agreement with Iconic provides Exelixis with an opportunity to build the foundation of a promising franchise in this area and will facilitate the discovery and development of additional TF-targeted biologics potentially addressing a wide range of oncology indications that complement and expand on those targeted by XB002.”
EXEL’s revenue has grown at a 49.6% CAGR over the past five years. Its total assets have grown at a 22.5% CAGR over the past three years, and its levered FCF has grown at a 12.8% CAGR over the past three years.
EXEL’s total revenues increased 67.1% year-over-year to $451.14 million in its fourth fiscal quarter, ended December 31. Its income from operations rose 380.1% from the same period in the prior year to $116.64 million. Its non-GAAP net income and non-GAAP net income per share stood at $113.32 million and $0.35, respectively, registering a 161.6% and 150% year-over-year improvement, respectively.
The Street’s $0.85 EPS for its fiscal year 2022 reflects an 18.1% year-over-year increase. And the Street’s $1.62 billion revenue estimate for the same year indicates a 13.1% rise from the prior year.
EXEL’s stock has gained 27.3% in price over the past three months to close yesterday’s trading session at $20.98. It has gained 14.8% year-to-date. It is currently trading above its 50-day and 200-day moving averages of $18.64 and $19.38, respectively.
EXEL has an overall A rating which translates to Strong Buy in our POWR Ratings system. The stock has an A grade for Value and Quality and a B grade for Growth and Sentiment. It is ranked #4 in the Biotech industry.
To see the additional POWR Ratings for Momentum and Stability for EXEL, click here.
What To Do Next?
If you’d like to see more top growth stocks, then you should check out our free special report:
What makes them "MUST OWN"?
All 9 picks have strong fundamentals and are experiencing tremendous momentum. They also contain a winning blend of growth and value attributes that generates a catalyst for serious outperformance.
Even more important, each recently earned a Buy rating from our coveted POWR Ratings system where the A rated stocks have gained +31.10% a year.
Click below now to see these top performing stocks with exciting growth prospects:
VRTX shares were trading at $236.32 per share on Thursday afternoon, up $2.21 (+0.94%). Year-to-date, VRTX has gained 7.61%, versus a -7.61% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.
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