Welcome to Smart Money! My name is Eric Fry, and I’m glad you’re here.
There’s no perfect investment method. If there were, we’d all be millionaires, and you probably wouldn’t be reading this letter.
But there is a way to allocate your assets intelligently, so you set yourself up for the best chance at success…
There are multiple facets to this strategy, but the one I want to focus on today is stocks to buy and hold forever.
You should think of these investments as your core holdings – your “Forever Stocks.” Treat these Forever Stocks as your “Elite 8” or “Top 10” – or whatever number you decide on. In total, these stocks should represent about 25% to 35% of your total portfolio.
These are the stocks you hold through thick and thin, unless the rationale for owning them changes significantly or you decide to replace one of them with a different stock.
Obviously, Forever Stocks will suffer during a severe bear market, just like ordinary stocks. So any investor who holds onto stocks like these during a sell-off is likely to suffer mark-to-market losses.
But these losses are a small price to pay for big, long-term gains…
And today, I have seven stocks that I consider to be some of the best “Forever Stocks” out there.
Let’s get started…
Stock No. 1: Teradyne
Teradyne Inc. (TER) presents a rare and timely investment opportunity, combining cyclical upside in its core semiconductor testing business with a growing robotics segment that’s rapidly gaining real-world traction, including a potentially transformative partnership with Amazon.com Inc. (AMZN). With strong fundamentals, strategic positioning in AI-driven automation, and a healthy balance sheet, Teradyne is poised to benefit from both short-term catalysts and long-term secular growth trends.
Teradyne is a global leader in Automated Test Equipment (ATE), essential for testing advanced chips in smartphones, AI servers, automotive electronics, and high-bandwidth memory (HBM). After a cyclical downturn, the semiconductor industry is beginning a recovery, as indicated by the company’s robust first-quarter 2025 results and resurgent capacity utilization rates in the semiconductor industry.
Teradyne’s semiconductor testing revenue rose nearly 25% year-over-year in the first quarter of 2025, which signals resurgent momentum. The semiconductor testing group then went on to earn better-than-expected results in Q2 2025. As AI deployment drives up demand for memory and advanced chip testing, Teradyne’s testing division should continue to post double-digit revenue growth for several quarters.
But Teradyne is also a fascinating robotics play, thanks to its savvy acquisitions of Universal Robots (UR) in 2015 and Mobile Industrial Robots (MiR) in 2018. Now that these acquisitions are well integrated into the company, Teradyne is producing industry-leading collaborative and mobile robots. In fact, the robot leader, Amazon, has begun deploying Teradyne’s UR-powered robotic arms in its Vulcan robot, which it touts as a revolutionary breakthrough in warehouse automation.
Amazon stows 14 billion items a year by hand – and aims to automate 80% of that. Based on estimated deployment needs, this could mean 5,000+ Vulcan units, with potential revenue for Teradyne ranging between $600 million and $1.25 billion over time. Even a phased rollout could surpass Universal Robots’ entire current revenue. Importantly, Vulcan’s success could drive other companies to adopt similar solutions, positioning Teradyne as the premier “picks and shovels” supplier of the next wave of warehouse automation.
Teradyne’s ongoing collaboration with Nvidia Corp. (NVDA) is another key asset. Nvidia is integrating its Isaac platform into both Teradyne’s “universal robots,” the kind that operate alongside humans in industrial settings, and its “mobile industrial robots.” These robots can now think and react in real time, which is a necessity for chaotic environments like Amazon’s fulfillment centers. This collaboration with Nvidia gives Teradyne a major edge as AI-powered automation scales globally.
Currently, robotics contributes less than 15% of Teradyne’s revenues. But that percentage could ramp up quickly if the robotics industry enters the mega-growth phase many experts anticipate. Teradyne management has guided long-term EPS to $7.00–$9.50 by 2028, but the company’s history of conservative forecasts and industry-beating execution suggests upside potential.
If, for example, EPS reaches $11.00 by 2028 and TER trades at its historical 20x P/E, that implies a price of over $200 – or more than double its current price. If the robotics boom surprises on the upside, and Teradyne’s market share in the robotics industry grows, a $400 share price is not out of the question. As an added plus, the company boasts a rock-solid balance sheet with half-a-billion-dollars worth of net cash.
Teradyne offers investors rare dual exposure: a cyclical rebound in semiconductors and a secular growth story in AI-powered robotics. The company sits at the forefront of the next industrial revolution, providing essential technology for AI, automation, and robotics. With a growing pipeline, AI-powered product innovation, and a transformative opportunity with Amazon, Teradyne is a compelling play on the future of intelligent machines.
Stock No. 2: Block
Volatility can open the door to new buying opportunities. That’s how I spotted Block Inc. (XYZ), which owns and operates the well-known payment app, Square.
The company’s story starts like this…
In 2009, Jim McKelvey, the founder of Mira Digital Publishing, ran into some trouble with his glass-blowing side gig. He wanted to sell an expensive set of glass bathroom faucets… but had no way of accepting his customer’s credit card. He spied a market opportunity.
In partnership with Twitter founder Jack Dorsey, the duo developed a square-shaped card reader that could plug into smartphones, eliminating the need for expensive card readers. It was a simple, elegant solution that cost just $0.97 in hardware and was given away to merchants for free.
In 2010, Square added 50,000 test merchants in a single summer. The following year, the firm was reportedly adding 100,000 new merchants every month.
Today, the company – now known as Block Inc.– helps merchants transact over $200 billion annually. Its point-of-sale systems are found everywhere from farmers’ markets to national retail chains. And the company has expanded far beyond the four-sided card readers that inspired its original namesake.
- Peer-to-peer payments. In 2013, Block launched Cash App, a peer-to-peer payments service that skyrocketed to popularity after offering lottery-style cash awards to users. In 2023, the mobile payment service available Cash App brought in over $248 billion of gross inflows, eclipsing Square by that metric.
- Small Business Software. In 2014, the company launched the integration of payroll features. This would eventually grow into a full software suite that includes inventory management, business analytics and order tracking.
- Buy Now Pay Later. The company acquired Afterpay in 2022, a buy-now, pay-later service. This acquisition gave Block a toehold in the fast-growing market. Its BNPL segment contributed $1 billion in revenues last year.
- E-Commerce. The firm acquired web hosting company Weebly in 2018, which it would transform into an e-commerce website builder for small businesses.
- Crypto. Block has also made some moves into cryptocurrency, including starting a decentralized crypto platform, known as TBD, and a self-custody Bitcoin wallet, known as Bitkey.
Thanks to Block’s sizeable multi-year spending on both capital investments and M&A, the company has become one of the world’s leading fintech companies. It has developed a comprehensive financial services ecosystem that serves both merchants and consumers and has generated $230 million in free cash flow annually since 2019. Block now appears to have reached an important inflection point, and the company is on a path to potentially grow beyond that.
In part, this hockey-stick-shaped growth is a reflection of the broader payment processing industry. The business tends to be highly scalable, since digital payment systems require large upfront investments that can eventually serve an unlimited number of additional customers at virtually zero marginal cost. (Block’s card readers also came with billions of costs in back-end investments.) So, payment processors tend to become enormously profitable after they reach a certain scale.
But Block’s business model also exaggerates this growth trend, given its focus on flat fees, efficient client onboarding, and diversified software offerings. This creates more overhead, but also greater efficiencies once scale is reached.
In addition, the company’s Cash App product has gained a major adoption rate among younger demographic groups. It is the No. 4 app in the finance category on Apple Inc.’s (AAPL) App Store, and Gen Z and Millennials combined account for more than 70% of Cash App’s inflows. Additionally, Block is the only major fintech firm with a banking charter, and management recently announced intentions to roll out banking services for Cash App customers.
“It is about making Cash App our base’s primary financial tool,” Block CFO Amrita Ahuja said during his second-quarter earnings remarks, “which ultimately leads to stronger engagement and stronger inflows.” The Cash App card now has 57 million monthly transacting active users, making it even larger than many regional banks like TD Bank by that measure. This offering is an “option value” for future growth.
Best of all, shares of Block don’t yet reflect these truths. Investors rarely seem to reward forward-looking companies that “spend big” to gain market dominance and instead rely on the rearview mirror of past earnings and expenses. But this necessary evil is the exact process that companies like Amazon, Microsoft Corp. (MSFT), Netflix Inc. (NFLX), and others pursued to become legendary companies.
Stock No. 3: Corning
If we were to play a word-association game and I said, “Artificial intelligence,” you might respond with something like “Nvidia,” or “Google,” or maybe “robots.” You probably would not say “Corning.”
But as it turns out, this iconic glass maker could benefit significantly from the AI boom, as a classic “picks and shovels” play.
For more than 170 years, the Corning Inc. (GLW) name has been synonymous with best-of-breed glass products. It has continuously innovated and set the industry standard for excellence.
In 1879, a 32-year-old Thomas Edison approached Corning with the concept of a lightbulb. This new invention would require a specialized glass that would be stronger than typical window glass but could also encase delicate filaments inside the bulb. Corning fulfilled the mission and became Edison’s sole supplier.
Over the ensuing decades, Corning produced a variety of glass-based marvels, dominating one industry after another. In the 1960s, for example, Corning was producing 100% of the world’s TV screen glass.
In 1970, Corning introduced the world to the company’s most marvelous marvel of all: low-loss fiber optics. With this groundbreaking invention, thin strands of Corning glass could replace copper wire in telecommunications networks and transmit millions of bits of information per second via photons (pulses of light), rather than electrons.
Thus, the world of optical communications was born… and it has continued to thrive ever since.
Thanks to Corning’s market-leading position in fiber-optic cable, the company became a stock market darling during the dot-com bubble of 1999–2000.
During those go-go years, numerous companies were racing to deploy the fiber-optic networks that would provide bandwidth for this new thing called “the internet.”
As this “fiber rush” gained momentum, Corning cashed in.
From September 1998 to September 2000, Corning shares skyrocketed more than 1,300%. But that was just about the time the fiber boom peaked.
By 2002, worldwide installations had collapsed to 55 million kilometers… and Corning’s share price had collapsed from its dot-com peak of $113 to just $1.10.
As so often happens in the middle of a great, big boom, few market participants were able to recognize a bust-in-the-making.
“We believe the global appetite for internet bandwidth and high-speed performance will continue to expand, and our products and technologies will make that possible,” Corning’s incoming CEO, John Loose, declared in late 2000, for example. “If there’s one recurring theme today, it is that this company is well positioned for sustainable growth.”
Corning did, indeed, survive. And thanks to AI, now it will thrive…
“More AI”
The path from AI to Corning is fairly direct and intuitive. AI technologies require enormous processing power from data centers. Because this new source of demand is surging, the companies that operate data centers are ramping up their capacity by building new centers and/or boosting the capacity and speed of existing centers.
That means surging demand for the optical fiber and components that Corning produces. Importantly, the growing AI workloads not only require more data centers, but also more fiber optic connections per data center.
According to CEO Weeks, modern data center systems that rely on Nvidia Corp.’s (NVDA) popular Hopper H100 GPUs require 10 times more fiber optics than a conventional data center server rack.
As Weeks explained on CNBC, “We’ve invented new fibers, new cables, new connectors, and new custom integrated optical solutions to dramatically reduce installation costs, overall time and space, and carbon footprint.”
Therefore, it is easy to see how more data center processing power means “more Corning.” On average, Corning estimates that data centers running AI large language models (LLMs) will require five times more optical connectivity than they have today.
In 2024 alone, hyperscalers like Alphabet Inc. (GOOGL), Amazon, and Meta Platforms Inc. (META) invested about $200 billion in data centers, hardware, and other technologies required to deploy generative AI models.
This massive investment caps a multi-year data center construction wave that has doubled the total capacity of hyperscale data centers during the last several years, according to Synergy Research Group. The Group predicts capacity will double by 2028, as 120-130 new hyperscale centers come online each year.
This building boom is finally showing up on Corning’s order books, with the company citing “strong adoption of our new optical connectivity products for Generative AI.”
In the wake of a favorable Barron’s story about Corning in June 2024, and the company’s subsequent upward earnings revision, the stock is no longer the “secret” AI play it once was.
However, it remains a relatively cheap and underappreciated AI play.
So, as tech darlings like Nvidia and Amazon continue to prosper, I would favor the unloved Corning for the next phase of the AI boom.
Stock No. 4: Equinor
Equinor ASA (EQNR) is the largest energy company in Norway and the ninth largest in the world, based on revenue. Importantly, it is Europe’s largest non-Russian supplier of natural gas, by far, and also a major crude oil producer.
The fact that this company operates next door to Russia used to be a footnote that barely deserved a mention. But that footnote became a headline after Russia invaded Ukraine.
At that time, Russia supplied about 40% of the natural gas Europe consumed every year. Norway was a distant No. 2 – providing 20% to 25% of Europe’s natural gas needs.
But as European countries have been phasing out Russian supplies of oil & gas, they have been phasing in additional supplies from Norway. Equinor benefits directly from this shift.
The company’s strong pipeline of development projects that will come on stream by 2030 will deliver around 6.5 billion barrels of oil equivalent (boe), at a breakeven level of $35 per barrel, while also producing a rapid average “payback” on investment of just two and a half years.
In keeping with that disciplined approach, Equinor recovered its investment in the recent Troll Phase III expansion in less than a year.
Additionally, the company has a long history of replacing reserves through disciplined exploration activities. During the last several years, Equinor achieved an average reserve-replacement ratio of 107%. In other words, it ended each year with 7% more reserves than when the year began. That’s an excellent record for a company of Equinor’s size.
Although the company strayed from its core oil & gas operations during the last few years to invest in “next generation” energy sources like wind and solar, it has been deemphasizing those activities recently.
I expect Equinor’s renewed focus on oil & gas production to position the company for solid earnings growth. Even in a “flattish” oil price environment, EQNR shares could trend higher to lift their valuation closer to their peers. In the meantime, the stock pays a hefty 6.4% dividend yield.
Stock No. 5: PayPal
PayPal Holdings Inc. (PYPL) is a titan of the digital payments industry.
The company traces its history to the year 2000, when Elon Musk merged his online bank, X.com, with Peter Thiel’s software company, Confinity, to form PayPal. The merged entity started spinning gold almost immediately for Musk and Thiel, as the inventive pair sold the company to eBay just two years later for $1.5 billion.
Then in 2015, eBay spun out PayPal as a separately traded company, which it has remained ever since. (Interestingly, 2015 was also the year that Musk and Thiel partnered up again to form OpenAI, the company that would go on to create the AI sensation, ChatGPT.)
During the last several years, the tally of active accounts on PayPal’s platform has swelled 63% to 435 million, while the annual volume of processed payments on its platform has doubled to a whopping $1.37 trillion.
PayPal’s dominant position in the “branded checkout” segment has powered most of that growth. The “PayPal/Venmo” checkout button you might see when shopping online is an example of that business. Around 80% of the top 1,500 retailers in North America and Europe feature PayPal in their digital wallets.
But PayPal is not taking its success for granted. The company is fortifying its market leadership by integrating leading-edge AI and machine-learning processes into key aspects of its operations. For example, the company uses AI to detect fraudulent transactions and to boost the approval rate of valid transactions.
Buy Now, Pay Later
PayPal’s growth strategy relies on three key initiatives…
- Strengthening its core “branded checkout” solution…
- Growing its “unbranded checkout” solution…
- And developing and integrating AI processes that increase merchant sales, boost customer “stickiness,” and/or reduce operating expenses.
Branded Checkout is the foundation of PayPal’s business because of its high-margin fee structure. This business segment accounts for about one-third of the Total Payment Volumes (TPVs) the company processes, but it produces more than half of its total revenues.
PayPal is the market leader in branded online checkout with 35 million merchants on that platform. Although the company does not possess the commanding 99% merchant acceptance rate of legacy credit card companies like American Express and Mastercard, it has the largest acceptance rate of any “alternative payment method” (APM) provider. This category of payment solutions includes direct debit transactions, prepaid debit cards, and eWallets like PayPal, Venmo, Google Pay, and Apple Pay.
In 2020, PayPal launched a new “Buy Now, Pay Later” (BNPL) feature to bolster the appeal of its branded checkout offering.
Since launching BNPL, PayPal has issued loans to nearly 30 million customers. In 2022 alone, PayPal processed more than $20 billion of BNPL loans – up 160% from the prior year.
PayPal’s momentum in this market should propel it to undisputed leadership… and that’s no small matter in a sector that is growing as rapidly as BNPL consumerism.
BNPL-financed transactions now account for more than $300 billion in transactions worldwide.
Unlike its competitors, which must win new business to establish a BNPL relationship with a merchant, PayPal can deliver BNPL capabilities as a “bolt-on” to an existing relationship.
PayPal simply incorporates BNPL functionality into the existing checkout protocol. It is not a “new sale.” PayPal added BNPL capabilities to its existing relationship with Microsoft. Online shoppers at Microsoft’s Xbox Store can now access BNPL if they wish.
Prudently, PayPal is working to “externalize” these loans by selling them to a third party, rather than retaining them on their own balance sheet. By selling the loans, PayPal removes the risk of holding bad loans.
The company took a giant step forward toward achieving that goal when it struck a deal to sell up to €40 billion of BNPL loans to the global investment firm KKR.
Under the terms of the agreement, KKR acquired PayPal’s existing European BNPL portfolio, along with future originations of eligible BNPL loans. PayPal will continue to conduct all the customer-facing activities of the loans, including underwriting and servicing.
This major transaction not only removes a large dollop of credit risk from PayPal’s balance sheet, but it also frees up capital to accelerate BNPL originations in Europe and/or to conduct shareholder-friendly activities like buying back stock.
PayPal expects to generate about $1.8 billion in net proceeds from this transaction and states that it will use a portion of the proceeds to boost its 2023 share repurchase program to $5 billion. In 2022, the company repurchased $4 billion in stock, which reduced the share count by about 3%.
Paving the Way
Now, PayPal is getting ready to dominate a new market…
Agentic AI commerce.
Starting in 2026, OpenAI will integrate PayPal’s wallet and payment technology into ChatGPT’s “Instant Checkout” experience. This will allow users to complete purchases directly inside the chatbot.
PayPal controls the full checkout user interface (UI) and authentication flows. That means an AI agent can open sessions, request approval, store consent, and authorize transactions, all within a single session.
That makes it far easier to monitor AI agents and add appropriate guardrails. And if an AI makes an honest mistake, PayPal can easily reverse the transaction without going through merchant banks. It’s a one-stop payments shop. In other words, agentic e-commerce will be a game-changing technology, even if the details are not yet fully known.
Perhaps the most remarkable aspect of PayPal today is its valuation.
The San Jose, California-based company is priced more like a zero-growth merchant bank than a fintech platform. A post-Covid slowdown in e-commerce spooked markets, and investors were concerned that PayPal had chased unprofitable businesses during the boom years.
This is an exaggeration of PayPal’s “demise.”
Over the next three years, analysts expect this fintech company’s revenues to grow 19% and its profits to rise 31%. And if AI agentic commerce truly takes off, we will see these growth numbers occur at an annual pace instead.
Stock No. 6: Bristol-Myers
Bristol-Myers Squibb Co. (BMY) is one of the largest pharmaceutical companies in the world, with a number of drugs that treat diseases in immunology, cardiovascular, and oncology. This portfolio includes blockbuster drugs like Eliquis, a blood anticoagulant for stroke patients, and Opdivo, used for the treatment of advanced-stage non-small cell lung cancer.
Bristol-Myers trades for about seven times forward earnings and yields more than 5%, backed by strong free cash flow and an A-rated balance sheet. Those numbers suggest a tired, no-growth company, yet its business is clearly regaining momentum.
CEO Chris Boerner opened the company’s third-quarter earnings call by saying, “Q3 was another strong quarter, reflecting focused execution across the business as we continue to make progress on our plan to position Bristol-Myers Squibb for long-term sustainable growth.” The results backed him up.
The company’s Growth Portfolio – the group of newer drugs that must replace its aging blockbusters – grew 17% year over year. Opdivo and Qvantig, key cancer immunotherapies, continued their steady advance. Free cash flow is rising sharply, and net debt continues to decline.
To grasp why Bristol-Myers still deserves its “research powerhouse” reputation, look past the medical jargon and focus on what the company is actually developing.
Cobenfy, its new schizophrenia drug, aims to break psychiatry out of a 30-year rut dominated by D2-blocking medications – drugs that work, but often cause difficult side effects. Because Cobenfy works differently, some doctors have been slow to adopt it as the new standard. Even so, prescriptions are rising by about 2,400 per week, and insurance coverage across Medicare and Medicaid is now nearly universal.
But the bigger opportunity lies ahead. Cobenfy could gain approval for Alzheimer’s-related disorders. Trials are underway for Alzheimer’s psychosis, bipolar disorder, and autism-related irritability. Boerner said, “Our confidence in the Cobenfy development program, including in Alzheimer’s disease psychosis, continues to be strong.”
In oncology, the partnership with BioNTech has produced Pumitamig, a dual-action drug that both exposes tumors to the immune system and cuts off their blood supply. Trials are advancing in lung, breast, and colon cancers. As Boerner put it, the company aims to be “first or second to market across indications,” where the commercial payoff is greatest.
Beyond cancer, Bristol-Myers is exploring cell therapy for autoimmune diseases, essentially resetting a patient’s misfiring immune system. Early results in lupus and scleroderma have been described internally as “spectacular.” And with the acquisition of Orbital Therapeutics, the company now has technology that could make such therapies off-the-shelf – manufactured in advance rather than customized for each patient.
AI and Digital Acceleration
Bristol-Myers is no longer just a drug maker; it is becoming a digital-first biomedical company. Boerner put it plainly: “We are integrating digital technology and AI across the company to drive efficiency and speed in how we discover and develop medicines.”
The impact is already visible. Trials start sooner. Patients are matched more efficiently. Data quality improves. In drug development, speed lowers cost and higher-quality data increases the odds of success. Bristol-Myers is applying AI to improve both.
Ironically, in a market obsessed with AI stocks, few investors seem to care how extensively the biopharmaceutical industry has integrated AI technologies. That oversight is exactly what creates opportunity. Away from the crowds and the blinding lights, drug companies are quietly entering a period of renewed strength, much like they did in the early 1990s.
For patient investors, the setup is enticing: a sector priced for disappointment, despite fundamentals that point in the opposite direction. Bristol-Myers is a clear example of this disconnect. Its valuation suggests stagnation, yet its operations tell a different story: accelerating growth in newer therapies, a deepening pipeline across major disease areas, and a strategic embrace of AI that should make future innovation faster and more predictable.
As Boerner closed the call, he underscored the quiet confidence behind the numbers: “We’re doing what we said we would do… and we look forward to the clinical data readouts accelerating into 2026, which have the potential to shape the trajectory of our growth.”
Bristol-Myers is not trying to reinvent itself; it is simply executing, steadily and visibly, in ways that the market has yet to appreciate.
Stock No. 7: Royalty Pharma
Now that the healthcare industry has entered the “Age of AI,” the opportunities to capitalize on it are popping up like weeds in a garden, or perhaps like bacteria in a Petri dish.
The biotech sector, in particular, is offering a compelling and timely opportunity. But investing in this high-risk sector can be a confusing and challenging endeavor.
A unique company named Royalty Pharma Plc (RPRX) removes some of the risk and confusion from the equation. As its name implies, the company manages a portfolio of royalties on both approved and development-stage drugs.
Typically, Royalty Pharma obtains royalties on a specific drug in exchange for providing financing to a university or pharmaceutical company. But sometimes, it simply purchases an existing royalty.
The company’s royalty partners include academic institutions like the University of California, Los Angeles and New York University, as well as leading pharmaceutical firms like Sanofi SA (SNY), Pfizer Inc. (PFE), AstraZeneca Plc (AZN), and Merck & Co. Inc. (MRK).
Royalty Pharma is the largest company of its type, by far. In royalty deals above $500 million, it has a massive 77% market share. Including the small deals under $500 million, the company’s share drops to 53%. But the No. 2 small-deal royalty investor only has a 13% market share.
Importantly, Pharma is not merely dominant; it is enormously successful. Since going public in 2020, the company has invested $13 billion by 2024 to acquire royalties on 34 unique therapies, 17 of which are either currently or projected to be blockbusters.
The New York-based company’s royalty-based business model generates exceptionally high profit margins. In 2024, for example, the company’s $3 billion of portfolio receipts produced $2.7 billion of portfolio cash flow, equivalent to a margin of 89%. On an earnings-per-share basis, the company posted net income of $1.75 as of late 2025. The stock is also yielding around 2.25%.
Looking ahead, Royalty Pharma’s sales and profits should continue to grow as the development-stage drugs in its portfolio gain approval. Currently, it holds a total of 58 royalties, 31 of which are for approved drugs and 27 for development-stage drugs.
Additionally, RPRX continues to expand its pipeline by purchasing royalties on promising drugs in development.
During the last few years, for example, the company added royalties on eight therapies, including incremental royalties on a blockbuster drug called Evrysdi – a prescription medicine developed by Roche Holding AG (RHHBY) to treat spinal muscular atrophy (SMA) in children and adults.
Other notable royalty purchases include:
- A 5.1% royalty on Adstiladrin from the Swiss company Ferring Pharmaceuticals. The FDA approved Adstiladrin in late December 2022 as a gene therapy for BCG-unresponsive non-muscle invasive bladder cancer. This royalty will increase to 8% this year.
- A 9.15% royalty on Skytrofa, the first FDA-approved growth hormone therapy, from Ascendis Pharma A/S (ASND).
- A $275 million synthetic royalty funding agreement with Denali Therapeutics Inc. (DNLI) in 2025, based on the future net sales of tividenofusp alfa, Denali’s lead investigational TransportVehicleTM-enabled enzyme replacement therapy treating mucopolysaccharidosis type II (MPS II, or Hunter syndrome).
The frenetic M&A activity in the biotech sector adds tailwind to Royalty’s profit growth. That’s because a takeover often accelerates the development timeline of drugs that are subject to royalties the company owns.
For example, immediately after Bristol-Myers purchased Karuna in 2023, it fast-tracked the development of Cobenfy, the new schizophrenia treatment that gained FDA approval in September. RPRX holds a 3% royalty on the first $2 billion of potential Cobenfy sales, and a 1% royalty thereafter.
The 2024 AG (NVS) takeover of MorphoSys AG (MOR) could also accelerate the development and commercialization of therapies where RPRX holds a royalty. Notably…
- A 3% royalty on the worldwide sales of Pelabresib, a novel and potentially practice-changing treatment option for patients with myelofibrosis.
- A 3% royalty on the worldwide sales of Tulmimetostat, an early-stage investigational therapy for patients with solid tumors or lymphomas.
Looking ahead, the company plans to invest another $10 billion to $12 billion in new royalty deals over the next four years. But it will also spend a few dollars buying back stock.
As Royalty Pharma CEO Pablo Legorreta stated…
Our priority, as we’ve said multiple times in the past, is to actually make great investments because that’s what’s going to drive growth and value creation for all of our investors, including ourselves.
The company is on pace to earn about $5 per share next year and $5.60 in 2027. At that level of profitability, the stock would be trading at a bargain-basement price of eight times 2026 earnings and just seven times the 2027 result.
For perspective, that brutish valuation is less than one-quarter the valuation of the S&P Pharmaceutical Index. This gaping valuation disparity will not last.
Moving Forward
I’m so glad that you decided to further your journey to wealth by joining Smart Money.
While these seven stocks are sure to fortify your portfolio in 2026 and beyond, those aren’t the only benefits of this free e-letter…
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Regards,
Eric Fry
