If you had to pin down what made for big winners in the second quarter of the Nasdaq derby it would be the surprising advance of businesses that should have fallen off with the Great Reopening. The companies that performed the best were, typically, those you would have thought would have been the worst, the ones that year over year would sputter as compares got tougher.
But that would both be a misperception -- these aren't pantry stocker companies -- and an understating of management's ability to take advantage of the moment and expand beyond whatever thought possible. Put simply, these companies were counted out way too early in the post-pandemic environment and the sellers are experiencing some real regret.
The first stock, up a shocking 79%, was the classic thought-to-be-over story, Moderna (MRNA) . Here's a company that was thought would reach peak sales in 2021 -- makes sense given the trajectory we have experienced since the vaccines became commonplace. But because of the Delta variant and the superiority of Moderna's vaccine over all others save Pfizer's (PFE) , Moderna's should have a much better 2022 than most thought. Until recently analysts were predicting 25 billion in revenues in 2021 dropping to 18 billion in 2022, but the 2022 number's been on the increase as the disease seems to be less under control than we thought at the beginning of the quarter. The EU, for example, just added 150 million more doses than its original order and the United States tacked on 200 million more. Plus Moderna expects to sell a huge number of doses to India and perhaps millions more to teenage Americans.
The staying power for Moderna is more than just the need to vaccinate, it's the need to vaccinate against the Delta variant and it does seem to be the case that Moderna works best against it, although Pfizer could certainly argue otherwise.
Moderna's a hard company to pin down for valuation. It has a $93 billion market cap and I think a lot of people fear that it could be like Gilead (GILD) , which hit a wall after its one-shot Sovaldi wiped out hepatitis C for all who took it. If you think that Covid's behind us, then I could see how you would hop off. If you think that the Delta variant is just the beginning and that we will have to have regular boosters, perhaps there's more to it. To me, the crucial test will come if Moderna can offer personalized cancer vaccines in time to offset the decline in Covid vaccine sales. Most people don't understand that Moderna's principal appeal had been these kinds of vaccines. But the huge revenues from Covid have obscured that blockbuster opportunity. I consider the stock too elevated at this point but those who fear the Delta variant would be certain to disagree.
The next stock after that, though, DocuSign (DOCU) , is a perfect example of what you would least expect to be up 38% after the reopening has taken hold. People often link DocuSign to Zoom (ZM) , two products we will never retreat from post-Covid. The first, though, is gaining speed and offering new categories, like the agreement cloud, which is more of a platform meets service silo than a simple e-signature business. Plus the near-term introduction of a notary replacement -- talk about vestigial -- and expansion almost totally unexploited internationally. Zoom, on the other hand, while ingrained and loved, has competition and could see its speed of growth tapered because of a return to international business travel. I think Zoom's too cheap but I truly like DocuSign given that it's become as generic as a Zoom call but has fewer competitors. As CEO Dan Springer always reminds you, once people have tried DocuSign "they don't go back."
We all knew the stories of how companion animals took off during Covid. Dogs were everybody's best friend. The trend couldn't come at a better time for Idexx Labs (IDXX) where there had been a growing concern that the humanization of pets theory had begun to play out. Now, though, new pets have come into a world at a time when the educated pet owner knows you have to go to the vet more than once in a couple of years' time. And when you do, your pet is more than likely to deal with diagnostics from Idexx.
There's been no real cessation of pet adoption with the pandemic slowing down. Plus, pet owners who have one pet are increasingly taking on a second.
The pet adoption agencies are more and more scrutinizing of owners and are testing the pets under their care for all sorts of illnesses, including a fecal test that is from Idexx. Plus, people may not realize it, but Idexx, which had been doing much better in companion than in livestock, has a robust African Swine Fever testing business in China. The stock of Idexx is perennially expensive -- it's at 80 times earnings right now -- and then it justifies the multiple with fantastic results. Another 29% rally might be hard to repeat, but I think that the company will still surprise in the second half.
Intuit (INTU) is either the luckiest company or the smartest. I can't even tell. Maybe both. Intuit's got a fantastic small and medium-sized business, QuickBooks, which looked like a goner when that cohort looked doomed. But then PPP gave it new life. It paid $8.1 billion for Credit Karma back in 2020, which looked like way too much. Instead, 40% of Credit Karma's new customers come from Intuit's base. In return for spending habits, Credit Karma gives you free credit scores. People are addicted to getting their scores. The score keepers are happy to give away the info in order to offer targeted ads in an incredibly virtuous circle. But my favorite part of the story is TurboTax. Can you imagine how many people who might have gone to an H&R Block (HRB) office turned to TurboTax's video offering? Game set match. Like DocuSign, I don't think you ever go back to the old way, and the old way is its faltering competitor.
I think that this company's stock, up 28%, has a very good chance of continuing its winning ways if only because it's products keep getting better and better. Unless you own a small business I do not think you know just how great these guys really are.
Finally, I am sure you might be thinking there has to be at least one more reopening story among the winners. Perhaps Intuitive Surgical (ISRG) seems like one, where people might have held off elective surgery until the pandemic subsided?
I think the stock of Intuitive Surgical rallied 24% last quarter because it has a gigantic replacement cycle and it is still not as penetrated as it should be given that it's got so many more uses than ever thought possible when its Da Vinci machine was first rolled out: cardio, colorectal, head and neck needs, thoracic, gynecological and, of course, prostate illnesses. This is a remarkable company because it offers a lower cost to treat, along with a better patient experience, better surgical experience and better outcomes. Why isn't the darned thing mandated?
I know there are people who believe that its time has come because Medtronic (MDT) has a strong competitor. But people have written this company off like that for ages.
I would stick with Intuitive. In fact, of all of these winners, I expect it to do the best in the second half.
It's always tough to repeat. But it's not as tough if you have brilliant people at the helm. In every case of these top five it's a given. I'd buy ISRG now; I'd buy all but Moderna on weakness, the latter's just too hard for me to figure out, at least at these levels.