Bear markets are uncomfortable and unpleasant for investors of all experience levels. However, more experienced (and successful) investors, intuitively understand that they are a necessary part of the market cycle.
Bear markets clear out the excesses of bull markets, transform greed into fear, and lead to attractive valuations. Bear markets can also help us identify the next batch of winning stocks that will go on to deliver massive returns. Think about buying Amazon (AMZN) after the dot-com bubble or Apple (AAPL) after the housing bubble.
One commonality between these winning stocks is continued business and/or financial momentum during the bear market when most other companies are focusing on survival. Here are 2 stocks showing characteristics of being the winners of the next bull market:
Vertex Pharmaceuticals (VRTX)
VRTX discovers and develops small-molecule drugs for the treatment of serious diseases. Its key drugs are Kalydeco, Orkambi, Symdeko, and Trikafta for cystic fibrosis, where Vertex therapies remain the standard of care globally. The company also focuses on developing treatments for pain, type 1 diabetes, inflammatory diseases, influenza, and other rare diseases.
The company's cystic fibrosis drugs are poised to continue dominating the market for the foreseeable future due to the disease-modifying potential of the drugs, consistent use by patients, and very little competition. VRTX combination therapies also have lengthy patents, which protect its cystic fibrosis portfolio from generics. There is also potential for its non-cystic fibrosis pipeline, which has exposure to promising areas, such as AAT deficiency, sickle cell disease, and beta-thalassemia.
VRTX has an overall grade of A which equates to a Strong Buy rating in the POWR Ratings service. A-rated stocks have posted an average annual performance of 31.1% which compares favorably to the S&P 500’s average annual gain of 8.0%.
VRTX also has strong component grades including an A for Quality due to 11 out of 19 analysts covering the stock having a Strong Buy rating with only 2 having a Sell rating. It’s also regarded as one of the top companies in the space due to its dominance of the CF market and a strong pipeline of potential, blockbuster treatments. Click here to see more of VRTX’s POWR Ratings.
Stride (LRN)
One commonality of the bull market winners of the past is that it was connected to secular growth themes. Another area of secular growth is homeschooling which is becoming increasingly popular due to a variety of politcal and unpolitical reasons. There is also chatter that vouchers could be used for homeschooling purposes.
LRN is probably the only stock that is connected to this theme as it offers an online platform for education, including hosting third-party material. Currently, about 2 million students are using Stride’s platform in one way or the other. Stride is also looking to bolster its product lineup by offering more career education services and also more third-party material.
Stride is positioned as the leading company for anyone who is pursuing an education on their own initiative. This is going to be a promising area of growth, especially considering the egregious cost of a college education. And, Stride will get another tailwind from the increasing odds of Republicans winning control of Congress in 2022.
The POWR Ratings are also bullish on LRN as it’s rated a B which translates to a Buy. B-rated stocks have posted an average annual performance of 21.1% which compares favorably to the S&P 500’s annual average gain of 8.0%. Click here to see more of LRN’s POWR Ratings.
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VRTX shares were trading at $279.51 per share on Friday afternoon, down $3.60 (-1.27%). Year-to-date, VRTX has gained 27.28%, versus a -16.38% rise in the benchmark S&P 500 index during the same period.
About the Author: Jaimini Desai
Jaimini Desai has been a financial writer and reporter for nearly a decade. His goal is to help readers identify risks and opportunities in the markets. He is the Chief Growth Strategist for StockNews.com and the editor of the POWR Growth and POWR Stocks Under $10 newsletters. Learn more about Jaimini’s background, along with links to his most recent articles.
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