6 Testing, Diagnostics and Medical Devices Stocks You Should Know About

It's difficult to find stock sectors bucking the market's downtrend. But medical equipment and diagnostics stocks are attracting investor attention. Several leading advisors, and MoneyShow.com contributors, review some favorite ideas ranging from lab testing and diagnostics to medical equipment makers. Eddy Elfenbein, Growth Stock Advisor I have no doubt we'll get through Covid-19. We are a resilient, innovative, and adaptable country. But, as with our experiences post-9/11, I also know the world is changing. And, with that change comes new challenges, and new opportunities. One of the tools in the fight against infectious diseases that has now become ingrained in our everyday nomenclature is testing. Roche Holdings (RHHBY) has been working closely with the FDA to develop faster tests for coronavirus. In the same way that post-9/11 rules had us all removing our shoes before boarding an airplane, it is not inconceivable that post coronavirus lockdown, we could find ourselves being tested before entering work or paid events. The company that develops the best and fastest test will surely profit greatly. Not only is Roche developing new tests for Covid-19, but it is also testing some of its already developed drugs, such as one for arthritis, which may be beneficial in the treatment of coronavirus. Roche revenue increased 9% in full year 2019 versus 2018. The company grew its diagnostic (testing) business 3% and its pharmaceuticals business 11%. If my assumptions are correct, diagnostics may become a much larger driver of revenue going forward. Danaher is one of the strongest companies you'll run across. For 50 years, it's been run by the Rales brothers. Their specialty is finding and buying overlooked niche companies with strong cash flow. It's a simple formula, and it's been incredibly successful for them and their shareholders. Over the last 30 years, Danaher has crushed the rest of the market. In 2016, Danaher bought Cepheid for $4 billion. This week, the FDA announced emergency approval of Cepheid's Covid-19 test. The current test has to be sent off to the lab and takes four days to get results. With Cepheid's test, you can get the results in just 45 minutes, and the test can be done on-site. This is a huge development. Cepheid hopes to roll it out as soon as possible. Now Cepheid has to ramp up production to meet a very high need. What's interesting is that thanks to Danaher, Cepheid's manufacturing capabilities have significantly improved. Danaher also owns Integrated DNA Technologies, which can help spread the adoption of the Cepheid test. Danaher is normally a very sound stock, but with the share price down by 25%, it makes for a good value. Combined with a concrete advancement in the battle against coronavirus, Danaher is an excellent buy here. Jon Markman, Pivotal Point Testing is the first step in fighting Covid-19. Determining the scope of the problem helps medical professionals and policy makers prepare strategies. Testing is also the big opportunity for investors. Laboratory Corp of America Holdings bills itself as the world's leading health care diagnostics company. The Burlington, N.C.-based company had $11.6 billion in sales during 2019, a paltry increase of 2% year over year. However, the best is yet to come. Testing for Covid-19 in the United States is about to ramp up substantially. LabCorp will play a central role. Managers have built a strong relationship with the Trump White House. Now the company is rolling out aggressive new testing targets. LabCorp facilities are expected to be capable of performing 20,000 tests per day by the end of the month. This represents a massive new, unanticipated sales bonanza that could last several quarters. The shares recently traded at around 11.8x forward earnings and only 1.5x sales. Given the prospect of an uninterrupted new revenue stream, this seems extremely inexpensive. Bill Gates is one of the most successful entrepreneurs in the past 50 years. He built his fortune by methodically preparing to tackle big problems. He's at it again. And big problems mean big profits for those with a solution. This is a wake-up call for investors. Look for weaknesses in companies like LabCorp that can provide solutions to today's pressing issues. Those could be opportunities for long-term investors. Long-term, researchers are building new drug treatments based on what they know about genetic markers and a patient's genomic makeup. And it's coming fast. Analysts believe the world is on the cusp of a barrage of new medical breakthroughs. Drug companies, healthcare providers and researchers are using big data analytics. Illumina Inc. , is the major beneficiary this trend. The San Diego company develops hardware and software systems used to analyse genetic and biological information. Its best-in-class systems have become vital to the development of cutting-edge health science. To their credit, Illumina managers recognized the opportunity long ago. They built the biggest, most cost efficient company in the DNA sequencing space, commanding 70% market share. And when competitors popped up, Illumina managers either swallowed them whole, or reduced sequencer prices so drastically that companies with less scale found it difficult to grow. The company, since 2010 has acquired 10 businesses, according to Crunchbase. Sequencing costs have plummeted from $10 million in 2008, to $1,000 in 2015, to only $100 today. That price point makes genomic testing feasible for every patient, setting up infinite research possibilities. Growth investors should consider adding Illumina shares into weakness. Kevin Huang, CFRA Research Our latest focus stock is Stryker Corporation , which carries CFRA's highest recommendation of 5-STARS, or Strong Buy. It is a leading medical devices company that offers innovative products and services through its three segments: Orthopedics (35% of 2019 revenues), Medical & Surgical (44%), and Neurotechnology & Spine (21%). We view the company favorably because it is a large, diversified supplier of reputable medical devices and supplies, making it a preferred vendor for the hospital industry, which has been consolidating in recent years. In the long run, we think that SYK can maintain a low-double digit earnings growth rate because of its operational discipline, experience with M&A integration, and strong competitive position in orthopedic robotics. We view the orthopedics business as an area of strength and opportunity because of Stryker's MAKO robotic offering. The MAKO robotic orthopedic system first received FDA approval in 2008 for partial knee arthroplasty procedures. The MAKO system expanded to include partial hip, total hip and total knee arthroplasty (i.e. TKA) by 2015. Stryker's early foray into the robotic orthopedic market has allowed the company to establish a dominant reputation and position that will be difficult for competing products of equal or lesser value to overcome, by our analysis. We anticipate that the continued competitive strength of the MAKO robots will continue to drive share gains for SYK in the traditionally stable knee and hip replacement markets. We recently lifted our opinion on shares of SYK to Strong Buy from Buy because we think that shares have been oversold in response to Covid-19 concerns. While we expect Covid-19 to negatively impact elective procedure volumes in 2020 and hence sales, we don't think the impact of Covid-19 to long-term share values is as substantial as the recent decline in shares has been. Our 12-month target price of $234 reflects a multiple of 26x our next-12-month EPS estimate of $9.00, above peers due to SYK's sustained above-market organic growth, driven by an increasingly strong competitive position. Risks to our recommendation and target include pricing pressure, intensified competition, and weaker-than expected medical procedure volumes. Mike Cintolo, Cabot Top Ten Trader Joining the fight in the coronavirus pandemic is Quidel , which offers a number of rapid point-of-care tests for detection and diagnosis of many critical diseases and conditions. These tests include influenza, respiratory syncytial virus, Strep A, herpes, pregnancy, thyroid disease and fecal occult blood, among others. With point-of-care testing, hospitals, urgent care centers and emergency rooms can see the test results within minutes instead of sending them out to a laboratory (getting a response in a few days), and that is boosting this firm's prospects during the current pandemic. The number of coronavirus tests has ramped up in the U.S. (running north of 100k per day), but speed of results is still an issue. Thus, the FDA just approved Emergency Use Authorization for Quidel's Lyra SARS-CoV-2 Assay -- which detects nucleic acid-to include three additional thermocyclers (machines that amplify segments of DNA). As well, the authorization adds to the specimens from which testing can be done, now including nasal and nasal turbinate swabs. The company says that the reagents used in the test allow simple transport and storage, improved workflow, shorter time to result, and other benefits that favorably affect diagnostic test outcome. Quidel has also received The CE Mark, which allows it to market and sell its test in Europe and elsewhere, and got the thumbs up from Canadian authorities, too. Historically, growth hasn't been fantastic here, but Quidel's revenue growth has been picking up steam, fourt-quarter results easily trounced estimates and there's no question demand for its new devices should be strong in the months ahead. QDEL broke out of a year-long base in November and rallied to the low $80s near the start of this year, after which it has some gyrations but was still holding in that area as of two weeks ago. But that's when the stock clearly changed character -- QDEL has boomed recently on monstrous volume and is perched near its highs. Dips would be interesting, with a stop in the prior (low $80s) range.

6 Testing, Diagnostics and Medical Devices Stocks You Should Know About

Look for weaknesses in companies like these that can provide solutions to today's pressing issues.

Columnist Conversation

This Weekend on Real Money

Wednesday Morning Fibocall for 1/13/2021

Tuesday Morning Fibocall for 1/12/2021

COLUMNIST TWEETS

Please Join or Log In to manage and receive alerts.