What's the smartest growth stock to buy with $500 right now? Different investors would answer that question in different ways. A stock that's a smart pick for one person might not be so smart for another.
This isn't an easy question to answer, in my opinion. I think there are quite a few growth stocks to buy with $500 that qualify as smart picks. But if I had to choose just one? An exceptional stock does float to the top of my list.
My selection criteria
Before I reveal which stock I picked, allow me to first explain my selection criteria. I'm assuming that buying a fractional share isn't allowed, so this limits me to choosing from stocks with share prices of $500 or less.
We're also only talking about growth stocks. I therefore didn't consider any stock that I don't expect to be able to deliver at least double-digit percentage growth over the next five years.
The resilience of the company's underlying business is a key factor to me, too. I think the smartest growth stock to buy will be one with a business that should fare well even if the macroeconomic conditions aren't so great.
I can't leave out valuation, either. To be sure, a stock doesn't have to be dirt cheap to make my list. However, its valuation should be attractive relative to its earnings growth prospects.
This selection criteria eliminated several great stocks. For example, I like Latin American e-commerce and fintech leader MercadoLibre, but its share price of over $2,000 is too high. I think Nvidia has massive growth prospects, but a sharp economic downturn would almost certainly hurt the company's business. The Trade Desk is one of my favorite stocks, but its forward earnings multiple of around 92 makes it difficult for me to pick as the smartest growth stock to buy right now.
And the winner is...
So which stock survived my selection criteria gauntlet to stand above all the rest? Vertex Pharmaceuticals(NASDAQ: VRTX).
The big biotech leader's share price of around $475 remains below the $500 threshold for now. Vertex stock briefly topped $500 this summer but is now around 6% below its all-time high.
I'm confident about Vertex's growth prospects. The company's launch of gene-editing therapy Casgevy is in its early stages. The U.S. Food and Drug Administration (FDA) plans to make an approval decision on Vertex's vanzacaftor triple-drug combo by Jan. 2, 2025. If approved, it could be the company's most successful cystic fibrosis therapy so far. The FDA also set a PDUFA date of Jan. 30, 2025, for suzetrigine, a non-opioid drug for alleviating acute pain.
Vertex's pipeline features three late-stage programs with tremendous commercial potential. Inaxaplin targets APOL1-mediated kidney disease, which affects more patients than CF. The company views povetacicept as a "pipeline in a product" with kidney disease Iga nephropathy as its first targeted indication. Vertex is also evaluating suzetrigine in a phase 3 clinical study as a treatment for peripheral neuropathic pain.
As for business resilience, consider that Vertex markets the only drugs that treat the underlying cause of CF. Casgevy effectively cures sickle cell disease and transfusion-dependent beta-thalassemia. Vertex's sales are unlikely to be affected much, if at all, by economic turbulence.
That leaves valuation. At first glance, Vertex stock might seem to be at least a little pricey with shares trading at over 26 times forward earnings. However, its price-to-earnings-to-growth (PEG) ratio based on five-year earnings growth projects is a super-low 0.57, according to LSEG.
Vertex's main risk
Biotech stocks can be risky -- primarily because their pipeline programs can flop in clinical trials. This is a real risk for Vertex. The company has experienced clinical setbacks in the past, most recently with the company throwing in the towel on two experimental drugs targeting alpha-1 antitrypsin deficiency, a rare genetic disease.
The good news for Vertex, though, is candidates that make it to phase 3 testing aren't as risky as earlier-stage programs. I think the company's chances of success are very good with its two drugs awaiting FDA approval. I'm also optimistic about Vertex's three programs in late-stage studies.
Maybe there's a smarter growth stock to buy right now with $500. However, I can't think of a better pick than Vertex.
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Keith Speights has positions in MercadoLibre, The Trade Desk, and Vertex Pharmaceuticals. The Motley Fool has positions in and recommends MercadoLibre, Nvidia, The Trade Desk, and Vertex Pharmaceuticals. The Motley Fool has a disclosure policy.
