Vertex and Chipotle: A Tale of Two Growth Stocks
Shares of Vertex Pharmaceuticals (VRTX) began trading at 168 this morning after closing at 132.16 yesterday—up 27%—in the wake of the company’s July 18 breakthrough drug announcement.
Vertex reported, “positive data from Phase 1 and Phase 2 studies of three different triple combination regimens in people with cystic fibrosis (CF)… These are the first data to demonstrate the potential to treat the underlying cause of CF in these patients, who have a severe and difficult-to-treat type of the disease.” Forbes paraphrased, “Three different three-drug regimens all provided dramatic results against cystic fibrosis, a fatal disease of the lungs and digestive system that afflicts 75,000 people worldwide.” An analyst from a major Wall Street company called the drug study results a “best case scenario,” and raised his price target on VRTX to 190.
The new medical treatments are not expected to be available to patients until the second half of 2020, although an accelerated process with the FDA could move the timetable up a year.
Here’s the July 18 press release from Vertex.
I had previously planned to sell VRTX as it approached two-year price resistance near 140. However, the good news on the triple-combo drug has completely changed the stock’s outlook. Stocks that are reaching new highs act differently from stocks that have a ceiling on their share prices.
Hold your Vertex shares. Vertex will announce second-quarter results on the afternoon of July 26. Analysts will be reworking their earnings estimates and recommendations in the coming days, and issuing new research reports that will generate more excitement for the stock. It’s even possible that a large slow-growth pharmaceutical company could make a buyout offer. We’ll talk more about earnings, valuation and share price activity in the coming days. Hold.
Chipotle Mexican Grill (CMG) is in the news again due to the closing of a Virginia restaurant location. Several customers apparently contracted norovirus. (Norovirus is not spread via food products, by rather likely by an infected employee.) The stock fell back down to its lows from November and December 2016.
Chipotle will report second-quarter results on the afternoon of July 25.
CMG joined the Buy Low Opportunities Portfolio at 443 in March, then moved from Strong Buy to Hold at 495 in April. More recently, I moved CMG back to a Strong Buy in June after the stock had a good pullback from its recent highs.
At this point, the outlook for the share price is cloudy. A problem in one Chipotle restaurant location should not affect earnings; but the news could further affect the share price or sales across the country if the incident gets a lot of media attention. I’m moving CMG back to Hold right now. Hold.