Health tech stocks set for skyrocketing
A post-pandemic upturn is in store for the quickly developing and high-margin health IT industry, according to Goldman Sachs.
“Firms in the diagnostics business will emerge from the epidemic ‘stronger and quicker growing,’” Goldman said.
The bank’s buy-rated stock recommendations are:
Exact Sciences is the largest cancer diagnostics company by revenue, Goldman said, and the analysts like it for its “strong” gross margin of 70 percent , which is set to increase to 76 percent over three years, as well as the firm’s expansion into early detection testing. “Its large commercial organization allows the company to commercialize new products more rapidly into the already established infrastructure,” the analysts wrote, adding that its entry into the $50 billion multi-cancer early detection (MCED) market provides “long-term upside opportunity.”
Oncology lab NeoGenomics has “strong organic revenue growth of more than 20 percent ,” and processes a million cancer tests per year, “the most of any U.S. lab company,” Goldman said. The bank also likes its acquisitions of competitors Clarient and Genoptix, as well as its commercial infrastructure that makes it easier to sell to customers. “We see significant upside ahead,” the analysts wrote.
Guardant Health (GH), which carries out blood tests known as liquid biopsies, has a gross margin of 68 percent , which Goldman expects to reach 70 percent over several years. “GH has shown an unmatched ability to develop innovative and highly accurate diagnostics with high clinical utility,” the bank’s analysts wrote. Goldman also said the stock has “significant long term upside potential” due to opportunities in the MCED market.
Organ transplant testing company CareDx has a “large share” of a growing sector, with the total addressable market growing from “a few” billion dollars to almost $12 billion, Goldman said. CareDx specializes in non-invasive testing for kidney, heart and lung transplant patients, which reduces complications and costs. The bank also likes its involvement in the whole “value chain” from donor matching to post-transplant care.
A “drastic” reduction in the cost of genetic-sequencing technology has boosted the diagnostics industry significantly, Goldman said, and an ageing population is likely to increase spending on testing. Added to this, the approvals process for health testing sped up during the pandemic and a new Rapid Acceleration of Diagnostics program put in place by the National Institutes of Health is likely to benefit the industry, with it emerging “stronger and faster growing” as a result, the bank added.
What to expect from the S&P 500 in the coming weeks
This little amount of pressure has trimmed the levitation rise on Friday, bringing the S&P 500 back to the doorway of the previous highs. Potentially ready to break over the ceiling after seven weeks of sideways trading?
Weight of the evidence leans slightly toward more eventual upside progress, but nothing says it has to come quickly or before some give-back choppiness.
Plenty of things to point toward to fit with a sluggish start to the week, but none of it particularly decisive. Global tax agreement, in theory, could reach Big Tech profits over time. Trade logjam in China and cautionary global Covid news. SEC suggesting it wants to scrutinize action in volatile story stocks, study payment for order flow and tighten up insider-selling rules. Just background noise really, but need to listen for faint signals.
Nasdaq firmed up this morning and holding up fine, largely thanks to FB and biotech. The latter group has been quite weak for months and caught a spark on the Biogen FDA Alzheimer’s drug approval.
The broad market set-up remains pretty steady, a narrow seven-week range to digest the huge post-October ramp, more stocks up than down over that time and cyclical sectors leading all suggest a decent underpinning. But unclear how much more the reopening dynamic can drive the tape, given we’re probably at peak earnings acceleration and comps get harder into the next couple quarters.
Opportunities for some typical late-June turbulence? CPI report this week, Fed meeting next, Russell index rebalance toward month’s end.
The mini-inflation panic has subsided, but tons of work from the Wall Street banks pointing out how equities have tended to be a good hedge/exploitation of rising inflation. Yet valuations usually suffer, so it’s a push-pull. Very lopsided bullish consensus forming around real estate stocks and, arguably, energy. Time to fade those trades or is it still early?
Meme stocks still have life. The market now is a funny blend of adrenaline and serotonin. Hopped-up speculative energy raging through meme-land with searing volumes and volatility and wild made-up stories. Meantime, flows into vanilla index funds have been huge, the market as a whole has been placid, rotating in a fairly understandable way using macro data and policy debates as lead inputs. Could even argue the traditional investors all-in is a bigger story than meme mania. It’s good and self-sustaining until it gets to a point of maximum belief with little room for error.
Market breadth is decent today, better on Nasdaq. Yields tame yet again. Credit quietly firm. What else is new?
VIX with only a modest “Monday effect” rebuild of premium, still below 17. It should be the “tell” if meme-stock nuttiness and idiosyncratic volatility is stressing the real big-money portfolios. Not yet, it would seem.
Where the market is going
Marko Kolanovic, of JPMorgan, believes the stock market will climb if the year progresses in a calmer manner.
In a letter to investors on Monday, analyst Oliver Kolanovic claimed the market was poised for a breakthrough.
“The next leg higher is likely upon us, following the sideways move in markets and bond yields over the past two months, with Cyclicals expected to do better again vs Defensives,” the note said. “Despite peaking in some activity indicators, the market is likely to get comfortable that growth will remain significantly above trend in 2H, supported by both consumer and capex.”
The prediction for a move higher in stocks is part of Kolanovic’s larger risk-on view. The trading pattern of the broader market appears consistent with a pause in a bull market and not a setup for a pullback, he said.
“Our outlook remains positive for risky asset classes, with expectations for Equities and Commodities to have the highest return, and bond yields to continue their move higher. This pro-risk view is driven by the ongoing recovery from the pandemic … accommodative monetary stance from global central banks, and still below-average positioning in risky asset classes such as equities and commodities,” the note said.
Kolanovic, his firm’s chief global markets strategist, did warn that market participants and economists appear to be underestimating the risk of inflation in the second half of the year. Rising prices and Fed policy changes could lead to higher interest rates and impact which stocks turn out to be winners, he said.
“This suggests that it is premature to come back to Tech, but Value and value-oriented sectors should continue to outperform,” the note said.
The Bitcoin shadow
According to a research released by Goldman Sachs over the weekend, Asian hedge funds are bearish on bitcoin relative to their colleagues in the United States.
Goldman polled 25 chief investment officers from various long-only and hedge funds last week, so the sample size is small.
Like in the United States, the legal status of bitcoin and other cryptocurrencies remains unclear in Asian markets, and institutional investors may be hesitant to invest in bitcoin until regulators establish a framework for it.
The chief investment officers are most bullish on China A-shares, which are stock shares of mainland Chinese companies traded on the Shanghai and Shenzhen stock exchanges. They are also optimistic about the Nikkei 225, an index of Japan’s top blue-chip companies traded on the Tokyo Stock Exchange.
Cryptocurrency developments in the traditional finance world indicate that there is a growing appetite for bitcoin and other digital assets, and institutions are just waiting for regulators to give them the go-ahead to serve them.
For example, BNY Mellon, the world’s largest custodian bank, announced earlier this year that it would offer bitcoin services, allowing the asset managers it serves to store and move the digital asset through BNY Mellon.
Much of the recent bitcoin bull run was driven by institutional investors, who drove the price up to new all-time highs throughout the first quarter of this year before dipping again last month and hovering around $35,000 since.
Many in the United States believe that a bitcoin exchange-traded fund will be a major catalyst for institutional investor adoption. However, the Securities and Exchange Commission stated last month that it is unlikely that a bitcoin ETF will be approved this year.
Meanwhile, major investment banks have attempted to meet wealthy clients’ demand for cryptocurrency. For example, Morgan Stanley informed its advisors earlier this spring that it would provide wealth management clients with access to three funds that allow them to own bitcoin.