Insights

2 Hot Stocks to Buy and Hold Until You Retire

Depending on when you plan to retire, growth stocks may be a good tool to build your portfolio to the size you’ll need it to be more quickly. Vertex Pharmaceuticals (NASDAQ: VRTX) and Nucor (NYSE: NUE) are two that haven’t been slowed by 2022’s market downturn. Vertex is up more than 22% this year while Nucor is up over 10%. That’s not bad, but over the past five years, they’ve seen at least triple-digit gains in share prices, revenue growth, and earnings per share.

They are vastly different companies. Vertex is a top-tier biotech while Nucor is the No. 1 steel producer in the U.S. However, the one thing they share is momentum.

NUE data by YCharts

1. Vertex Pharmaceuticals has the DNA to succeed

Vertex is best known for its suite of cystic fibrosis therapies, but it also has several small-molecule and genetic therapies in its pipeline that aim to treat a range of conditions including sickle cell disease, type 1 diabetes, transfusion-dependent beta-thalassemia, and Duchenne muscular dystrophy.

Over the past five years, its shares are up 113%, its quarterly revenue has grown by 285.5% and its earnings per share are up by 4,130%.

In its last quarter (period ended March 31), Vertex’s revenue rose 22% year over year to $2.1 billion, with net income up 17% to $762 million, and earnings up 19% to $2.96 per share. The company also reported an operating margin of 50%, and reiterated its 2022 guidance for revenue of between $8.4 billion and $8.6 billion, compared to $7.6 billion in 2021.

Its top-selling treatment Trikafta is a combination therapy that treats cystic fibrosis by targeting the F508del mutation in the cystic fibrosis transmembrane conductance regulator gene. Trikafta generated $1.8 billion in Q1, up 32.3% year over year.

The sales of various drugs are helping Vertex fund the research and development of its next potential blockbuster, CTX-001, which it is developing along with CRISPR Therapeutics to treat sickle cell disease and beta-thalassemia, both of which are genetic blood diseases. Every year, more than 300,000 babies are born with sickle cell disease and over 60,000 are born with transfusion-dependent beta-thalassemia. The therapy is in phase 3 trials for both indications, and Vertex plans to file for regulatory approval of CTX-001 from the Food and Drug Administration this year. Vertex has five other therapies in late-stage trials, so there’s plenty of potential there.

2. Nucor is building something worth hanging onto

As the largest steelmaker in the United States, Nucor provides an essential product for a wide array of industries. Much like oil companies, the fortunes of steelmakers are tied directly to the market prices they can get for the commodities they produce, but Nucor stock is up more than 17% this year even though the price of steel rebar has fallen from $5,750 per ton a month ago to around $4,600 in early June.

That’s because President Biden’s $1.2 trillion infrastructure bill, which was passed by Congress last year, is increasing the demand for steel, particularly steel made in the United States. Nucor is highly diversified regarding its products, and the company’s newer electric arc mini-mills give it a greater ability to shift capacity to whatever is most in demand.

The company has increased its revenue for seven consecutive quarters. It’s also one of the rare growth stocks that pays a dividend. It just raised its quarterly payout by 23% to $0.50 per share — its 49th straight annual increase. As such, it’s a long-established Dividend Aristocrat that is just one year shy of joining the even-more-rarefied ranks of the Dividend Kings. At today’s share price, its yield is 1.49%, above the S&P 500‘s average yield of 1.37%.

Nucor is coming off the most profitable first quarter in its 117-year history. It reported a net income of $2.1 billion, up 123% year over year, and diluted earnings of $7.67 per share, up from $3.10 in the prior-year period. And its revenue rose 50% to $10.5 billion. 

Making the right choice before you retire

When saving for retirement, it’s important to have growth stocks in your portfolio that can outpace inflation. With inflation at 8.26% for the 12-month period that ended in April, that has gotten harder to do, but Vertex Pharmaceuticals and Nucor both have strong track records of share price and revenue growth.

Nucor is huge and has great product diversification, which makes it less risky than other steel companies. Its dividend is especially safe with a 6.47% payout ratio, and whatever inherent risks there are seem to be priced into the stock, as it’s trading at a price-to-earnings ratio of 4.8.

Vertex’s price-to-earnings ratio of 28.69 is a little more expensive, though compared to other biotech stocks and considering its growth prospects, it’s still well in line with its industry. I think there’s more upside for Vertex in the long-term, though Nucor may be a better momentum pick right now.

Jim Halley has positions in CRISPR Therapeutics. The Motley Fool has positions in and recommends CRISPR Therapeutics and Vertex Pharmaceuticals. The Motley Fool has a disclosure policy.

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