One Strong Stock
Illumina, headquartered in San Diego, California, is the world's number one manufacturer of machines that enable genetic analysis, mainly gene sequencers, scanners and arrays.
Its customers include genomic research centers, academic institutions, government laboratories, hospitals and a variety of commercial pharmaceutical, biotechnology, agrigenomics and consumer genomics companies.
Revenues are now $2 billion, with 51% of that coming from the U.S., 25% from Europe, 18% from Asia-Pacific and the rest from elsewhere.
And here's a cool thing about the company: Consumables. The disposable components that are used for each analysis accounted for 56% of revenues last year, and that percentage is almost certain to grow larger, providing a steady stream of high-margin income.
So from a business point of view, the future is fairly solid here.
In the latest quarter, reported just last week, Illumina saw revenues grow 28% from the year before to $539 million, while earnings soared 72%, to $0.91 per share, beating analysts' estimates of $0.72.
But part of that was related to one-time and tax factors, so while trading was heavy after the report, the stock didn't soar. In fact, it kept on trading in the range that's held it captive for the past six months.
And that's a good thing, if you're looking for a low-risk entry point in a stock with great long-term potential.
In fact, I think ILMN is almost certain to eventually break out above its January-February high of 203 and begin a new advance.
So, you could simply jump in and buy the stock here; it's trading just a few points above its 200-week moving average.
Illumina (ILMN) is the world’s leading developer and manufacturer of machines that do large-scale analysis of DNA. Customers include genomic research centers, pharmaceutical companies, academic institutions, clinical research organizations and biotechnology companies.M
Last year, the company had 70% of the market for gene sequencing machines, and its machines accounted for 90% off all DNA data produced!
The U.S. accounts for 50% of revenues, while 25% comes from Europe and 20% from Asia-Pacific.
This is a very young industry, yet Illumina has fairly quickly locked in the leading market share, and in this business, once you’ve made an investment in a platform, you’re unlikely to switch.
In fact, because every sample analyzed uses consumables, customers pay Illumina a fairly steady stream of income; in 2014, 62% of revenues came from consumables.
Yes, the P/E ratio is 81, but that’s not crazy, considering the recurring income and the company’s growth rate. (And rule #1 for growth investors is Ignore P/E)
In 2014, revenues will near $1.9 billion while Wall Street analysts expect earnings to total $2.64 per share, and to grow to $3.17 next year. That’s good growth!
And then there’s the chart, which is quite exciting!
ILMN was a hot stock in 2012-2013, running from a low of 28 to a high of 183 in February 2014. For the past year, however, it’s been stuck in neutral, consolidating that gain, trading in a range between 130 early last year and 190 more recently. And now it looks like it’s breaking out to new highs, getting ready to resume its long advance.
So, you could simply buy here and hold for the long term, and I think that will work out if you’re a very patient investor.
But if you want regular updates on the stock, you’ll find them in Cabot Top Ten Trader, where Mike Cintolo originally recommended ILMN back in October as the first signs of this nascent breakout took shape.
His readers are already counting their profits, while every Monday reading about 10 stocks that have similarly attractive set-ups. Click here for more information.
From Cabot Wealth Advisory 6/14/10 Sign up for free Cabot Wealth Advisory e-newsletter
Illumina (ILMN) is a leading developer and marketer of genetic testing machines, valued by researchers the world over for their power to enable efficient high-throughput testing and analysis of RNA, DNA and proteins. Illumina has seen revenues grow every one of the past ten years, and it's seen earnings grow every year since it turned profitable in 2006. The future is bright. In fact, Illumina was recommended in today's issue of Cabot Top Ten Report.
From a personal level, what's interesting about Illumina is that the company last year began using its machines to offer consumers individual genome sequencing for a price of $48,000. This is valuable (to some extent) if you want to see what diseases and conditions you might be genetically susceptible to, or how your body might react to certain drugs. It's one step on the road to "personalized" medicine. To date, the company says that "at least" 14 people have been tested. And now, thanks to falling costs, the company is dropping the price of sequencing to $19,500, a level that should attract more customers.
However, just last Friday, the FDA (in its infinite wisdom) notified five genetic test makers, including Illumina, that they must get federal approval before marketing their products to consumers! The other four companies are 23andMe, deCODE Genetics, Navigenics and Knome. The FDA is claiming that the companies' products are medical devices and thus must be certified as safe and effective.
I don't agree. I think the FDA has enough power, and that if a person voluntarily chooses to get information about his body from any company offering to perform the service, the FDA has no right to stand in the way. But knowing the way that agency's power has been allowed to expand, I fear that it will be allowed to regulate this business, and in the process slow progress and increase the cost to consumers.
In any event, the important fact from our point of view is that this FDA notice didn't affect the stock, which remains a picture of health in what is still a volatile and generally unsupportive market.
For more info on Illumina and Cabot Top Ten Weekly, click here: Cabot Top Ten Weekly
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Timothy Lutts heads one of America’s most respected independent investment advisory services, publishing eight newsletters to more than 165,000 subscribers around the world. Tim leads a dedicated team of professionals who serve individual investors with high-quality investment advice based on time-tested Cabot systems. Under his leadership, Cabot has been honored numerous times by both Timer Digest and the Hulbert Financial Digest as among the top investment newsletters in the industry. Tim also edits Cabot Stock of the Month.
From Cabot Wealth Advisory, 8/11/08 Sign up for free Cabot Wealth Advisory e-newsletter
Today's investment idea is in the biotech field...again. I'm stuck on these stocks for several reasons.
One, they're strong; many have earned spots in Cabot Top Ten Report in recent months.
Two, many actually boast growing earnings trends.
Three, the group has failed many times in past decades to put together a lasting advance, so maybe now is the time. Psychologically, the fact that so many people are skeptical of biotech stocks is a big plus.
Four, there will be tremendous demand for health-improving products as baby-boomers age; biotechnology offers the best chance we have to stay healthy.
So take a look at Illumina (ILMN), the leading provider of the machines used to do genetic research. Whether it's researching the genetic links of disease or developing new drugs, Illumina is there.
In a recent issue of Cabot Market Letter, editor Michael Cintolo wrote, "Illumina is a leading maker of equipment for genetic analysis and business is great. The company's quarterly report on July 23 was a grand slam, with higher revenues and earnings than analysts had expected, plus a full-year profit forecast that handily topped expectations. Illumina is hardly unknown to investors, but its ability to routinely surpass expectations is remarkable. Part of the secret is the strong sales of consumables that follow each sale of an analyzer...the long-term prospects are excellent for this technology leader in the business of analyzing genes."
I look at it today and I see a company with revenues of $140 million in the last quarter, up 66% from the year before, and earnings of $0.44, up 52%. The stock has just pulled back from its high of 96 to a small base at 90, and I think it's a good buy here.
Editor's Note: Illumina is typical of the stocks recommend in Cabot Market Letter, our flagship publication. Chosen for both fundamental and technical factors, these are the stocks most likely to lead the new bull market higher. Past and present winners include Amazon.com, Qualcomm, Crocs and First Solar. To get started with your no-risk trial subscription, simply click this link: Cabot Market Letter
For Cabot Wealth Advisory, 1/28/08 Sign up for free Cabot Wealth Advisory e-newsletter
Illumina (ILMN), currently trading in the 60s, is one of two major public companies that make tools used for genetic medicine. The other is Affymetrix (AFFX). To say that they've been competitive would be polite; there have been lawsuits and countersuits about intellectual property in recent years.
But three weeks ago, both companies agreed to drop all legal claims, and Affymetrix agreed not to sue for a period of four years, after Illumina agreed to pay $90 million to Affymetrix.
The winner in the deal, according to the market? Illumina!
Since the announcement, ILMN is up 7% while AFFX is down 11%, and year-to-date, ILMN is up 9% while AFFX is down 9%
So what exactly does Illumina do?
"The future of healthcare may very well be "personalized medicine," a sci-fi -worthy vision of diagnoses from DNA samples and treatment tailored to patients' unique genetic profiles. This vision depends totally on the realization of economical, commercially viable DNA analysis. The clear leader in the industry is Illumina, maker of large-scale tools for genetic analysis with the high throughput rates necessary for commercial viability. Until then, Illumina's technology is already invaluable as a basis for disease research, drug development and molecular testing. All three applications got a boost, and a milestone on the way to economic viability was passed, earlier this month when Illumina launched two new BeadChips, the Infinium High-Density Human1M-Duo and Human610-Quad. Both contain even more information than existing tools, meaning they can recognize and analyze even more genetic variations. On top of that, both chips double sample throughput and reduce DNA sample requirements by 70%. As if that's not enough progress for one month, the company has announced that it will double production capacity over the next several quarters. The future looks bright."
I couldn't say it better. What I can add, however, is a suggestion of what the future might bring.
In my opinion, Illumina is shaping up to be a key player (perhaps THE key player) in the genetic medicine era, in much the same way that Microsoft became the linchpin of the desktop computer era.
(A linchpin, by the way, is a metal part used in mechanical engineering to prevent a wheel or other rotating part from sliding off the axle. Without it, things fall apart.)
When the desktop computer era started, remember, no one imagined where it would bring us. But investors who saw Microsoft as a key player, and had the courage to buy the stock and the patience to hold it, did very well.
Today, similarly, no one knows where the genetic medicine revolution will take us. But I can promise you this. The price of the technology will come down, down, down. The intelligence gained through genetic medicine will continue to increase. And then what?
Personalized medicine? A cure for cancer? Longer lives? Designer babies? I'm not very good at imagining things, but I am very good at seeing parallels and making connections, and I feel strongly that Illumina, whatever the future of genetic medicine, is going to be a far bigger company in the future.
Fundamentally, the business looks terrific. In the third quarter, revenues grew 82% to $97.5 million, while earnings shrank from $0.42 per share to $0.34 per share (the decline due mainly to stock-based compensation charges). Projections for 2008 are earnings of $1.24 per share, up 57% from 2007.
Looking at the stock's chart, here's what I see.
First, there's a major long-term uptrend running from the market's 2003 low to the present. Most recently, the stock tested resistance at 60 for a three-month period from September through December. Then the news of the settlement with Affymetrix came, and the stock zoomed from 60 to 75. Since then, it's retreated to 64, in the process touching its 25-day moving average. To me, it looks like a decent buying zone.
Of course, the broad market is still unsupportive, so conditions are far from ideal. But at least put this one on your watch list. I expect you'll be hearing about it again.
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1/12/15 The leader in DNA analysis
6/14/10 New FDA notice didn't affect the stock
8/11/08 The long-term prospects are excellent for this technology leader
1/28/08 Player in the future of genetic medicine