2 Growth Stocks to Buy and Hold Forever
Key Points
Intuitive Surgical's installed base and procedure volume should drive top-line growth and margin expansion.
Vertex Pharmaceuticals' strategic focus and culture of innovation make its long-term prospects attractive.
Investors who bought shares of Intuitive Surgical (NASDAQ: ISRG) or Vertex Pharmaceuticals (NASDAQ: VRTX) 20 years ago and held onto them are likely pleased with their decisions. Both companies have produced market-beating returns over the past two decades.
True, they've encountered significant challenges this year and have lagged the market since January. However, their prospects remain intact, and their performance in the long run could resemble the past.
Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Continue »
Here is why Intuitive Surgical and Vertex Pharmaceuticals are attractive "forever" growth stocks to invest in today.
Image source: Getty Images.
1. Intuitive Surgical
Progress in the healthcare field is allowing us to live longer. However, as people age, their need for medical services tends to increase. Over the next few decades, the percentage of the world's population age 60 and older will increase significantly, resulting in a higher demand for various surgeries.
Intuitive Surgical, a leader in robotic-assisted surgery (RAS), is well-positioned to help match this rising demand. The company's best-known product is the da Vinci system, which is approved for use across a range of procedures, in general surgery and beyond. Though Intuitive Surgical makes money from the sale of its flagship device, that isn't a particularly high-margin activity. Developing complex robot systems is highly capital-intensive.
However, the company's large and growing installed base should allow it to generate consistent revenue from the sale of instruments and accessories used with its da Vinci systems. Manufacturing instruments of this type tends to be less capital-intensive. They also have a short life cycle, so hospital systems need to replace them regularly. As the number of procedures physicians perform with the da Vinci system increases, so does the need for accessories.
The large up-front costs of the da Vinci system make hospitals unlikely to switch to a competitor, which would mean high switching costs. Intuitive Surgical has performed well over the past 20 years thanks to these dynamics, and there's more where that came from, considering its long-term tailwinds.
The stock does face some headwinds from tariffs and increased competition. But Intuitive Surgical's significant lead in the RAS industry, combined with the fact that this market remains severely underpenetrated, gives it excellent long-term prospects. The stock is worth holding on to for good.
2. Vertex Pharmaceuticals
Vertex Pharmaceuticals is a leading biotech company that focuses on developing medicines in areas with high unmet medical needs, particularly for diseases that currently have limited treatment options. The company found success in cystic fibrosis (CF), a rare condition that affects patients' lungs. Although its first CF medicine was approved in 2012, Vertex remains the only company to market therapies that target the underlying causes of CF.
That won't last forever, though, and Vertex knows that. The company also recognizes that it's unlikely to maintain a monopoly in another niche for more than a decade, so management is casting a wider net. Vertex Pharmaceuticals' recent approvals include Casgevy, a gene-editing medicine that treats two blood-related disorders, and Journavx, an oral non-opioid pain signal inhibitor -- the first of its kind.
The company's pipeline features several other exciting candidates. Vertex is nearing a regulatory submission for zimislecel in the treatment of type 1 diabetes (T1D). In an ongoing study, this medicine restored the ability of most patients to produce their own insulin, something that is normally impossible for those with T1D. And the mid- and late-stage pipelines feature other candidates in areas with few or no treatment options.
True, Vertex has faced some clinical setbacks. Another one of its investigational T1D medicines failed, as did a phase 2 clinical trial for VX-993 in acute pain. These headwinds are nothing out of the ordinary for a biotech company of this stature, and despite them, its lineup should look much stronger in five years.
Beyond that, Vertex Pharmaceuticals' continued successes in CF and elsewhere, its robust pipeline, and its culture of innovation make the stock attractive for investors focused on the long term.
Prosper Junior Bakiny has positions in Intuitive Surgical and Vertex Pharmaceuticals. The Motley Fool has positions in and recommends Intuitive Surgical and Vertex Pharmaceuticals. The Motley Fool has a disclosure policy.