This Growth Stock is a Buy Right Now

Note from Daily Trade Alert: The following article first appeared in The Growth Stock Advisor, a premium newsletter offered by Investors Alley.

One of the many places where the United States has fallen far short in its response to the coronavirus pandemic is in the field of genomic surveillance.

New variants of the coronavirus have been detected in places as varied as the United Kingdom, South Africa, and Brazil.

And yet here in the U.S., we have little testing for the mutations of the virus that are spreading. This is important because, as discovered in those other countries, the new variants are about 50% more contagious.

If the U.S. doesn’t find the variant cases and slow the virus, it will likely see the same kind of rapid spread other countries have seen.

Our hospitals are already straining to handle COVID-19 patients as it is.

Even more infections could lead to a higher death rate, simply because of a lowered quality of care due to overburdened health systems.

William Haseltine, a scientist who has done pioneering work on infectious diseases and the human genome, says the U.S. has been “very complacent” in not tracking mutations.

He suspects the extraordinary infection rates in California that have puzzled scientists are probably from an undiscovered virus variant.

President Biden’s COVID-19 advisory board has recommended that the new Administration put a “greater focus” on genomics surveillance to understand where the variants are and whether existing vaccines and treatments would be able to tackle them.

You may be wondering if there are pure-play investments that will benefit from this new emphasis on science in the Biden Administration?

Here’s a Genomics Tracking Play

The answer is yes. Here’s one example, grabbed from the news headlines: the U.S. Centers for Disease Control and Prevention (CDC) has signed a partnership with Illumina (ILMN), which develops genetic sequencing technologies.

Illumina and Helix announced this collaboration to augment national surveillance infrastructure in the U.S. in order to track the emergence and prevalence of novel strains of SARS-CoV-2, with support from the CDC. The combination of Illumina’s sequencing technology and expertise and Helix’s national COVID-19 testing footprint will significantly expand national efforts to detect and characterize emerging variants of SARS-CoV-2.

This work is both necessary and in Illumina’s sweet spot. As the company puts it: “At the most fundamental level, we enable our customers to read and understand genetic variations.”

Illumina CEO Francis deSouza said it was important to “sound the alarm” about the need to rapidly create a better infrastructure to track virus variants, adding that the lack of a central hub for tracking new variants meant labs were often forced to share sequences on open-source platforms. The recent identification of two variants in Ohio has increased the urgency. As deSouza warned: “We’re in a foot race now between these emerging [and more] transmissible strains and the vaccine rollout.”

Even before the deal with the CDC, Illumina played a big role in the COVID-19 fight. Its sequencers are able to confirm the strength of the disease in patients and provide immunological surveillance—and of course, detect mutations in the viral genome. Its machines have been used in Australia’s national COVID-19 tracking system, which aims to sequence the virus genome of all positive COVID-19 tests in the country.

Overall, over the past decade, scientists using the company’s technology were responsible for over 90% of the world’s sequencing data!

Illumina Going Gangbusters

The company [reported] earnings on January 27. Preliminary numbers [showed] a strong fourth quarter of 2020, not to mention a solid full year.

In the fourth quarter, Illumina received a record number of orders. Revenues are in the range of $950 million, and GAAP earnings per share will be about $1.71 a share. For 2020 overall, the company remains a leader in clinical genomics with over $1.5 billion in clinical revenues.

As usual, Wall Street is focused on the very short term. It punished Illumina’s stock with the shutdown of some labs earlier in 2020 due to the pandemic. But labs are re-opening and now Wall Street has pushed Illumina back near its 52-week high.

The company’s future looks bright. Genomic sequencing remains a relatively early-stage market. And expanded sequencing—as with the coronavirus—creates a large growth opportunity for Illumina’s products. Additionally, Illumina’s very large and growing installed base of sequencing instruments will translate into significant ongoing sales of high-margin consumables for those instruments.

However, because there are always scientific breakthroughs that will change the status quo, I will give Illumina only 4 stars. You can buy it at any price up to $450 a share. Keep in mind that all the major brokerage firms now allow you to buy fractional shares.

— Tony Daltorio
January 25, 2021

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Source: The Growth Stock Advisor