Why the Genomic Revolution Is Fueling Biotech Stocks

Your pet might help find the cure to cancer...

Are you a cat person or a dog person? 

This question triggered a fantastic debate within our company. Apparently, we are better at picking stocks than picking our favorite animals. 

This debate over our furry friends may be more important than many realize... Cats and dogs play important roles in medical research, and it is unclear which species is more useful.

Dogs have more biological diversity, so they can be useful in testing for different genetic conditions. Research in dogs and wolves has significantly bolstered our understanding of Williams syndrome. It turns out that the same gene responsible for Williams syndrome in humans is present in most domesticated dogs.

As a result, they remain playful and childlike for their entire lives, while wolves that don't carry that gene quickly grow out of their playful period.

However, the feline genome, not the canine genome, is more similar to the human genetic makeup.

More importantly, cats have a significantly reduced propensity for cancer compared with dogs and humans. It serves as a fascinating question of evolution, and it may teach us something about what needs to happen in the human body to reduce the risk of cancer. 

It looks like cats are making a new push to be man's best friend, at least when it comes to health care.

The field of genomics has been taking off like a rocket ship...  

Of course, it takes years of analysis and research to understand the power of feline and canine genomics. But none of that research would have been possible without the specialized, revolutionary equipment used to help isolate the biological data researchers need. 

That includes genetic sequencing, imaging, and other solutions to break down and understand genetic material. The makers of these technologies broadly fall into the genomics umbrella, which has been flooded with investor capital over the past five years. 

Genomics has become a $23 billion market and is forecasted to grow at a compound annual growth rate of 15% over the next several years. It's predicted to nearly triple in size to $63 billion by 2028.

Some of the companies we most frequently hear about in the space are 10x Genomics (TXG), CRISPR Therapeutics (CRSP), and Bio-Rad Laboratories (BIO). These companies' products and processes now form the bedrock for hundreds of labs trying to make real use of recent advances in the genetics field.

Let's look at one of the leaders in the genomics industry...

One key supplier to the industry is Thermo Fisher Scientific (TMO), a $250 billion company. It sells bioprocessing equipment, consumables, reagents, and countless other tools servicing laboratories of all shapes and sizes.

We frequently highlight how profitable industry suppliers can be, and The Altimeter shows Thermo Fisher Scientific is no exception. The company has turned its suite of solutions into a cash printer. Hence, it reached a Uniform return on assets ("ROA") of nearly 43% in 2020 and therefore earned an "A" for Earning Power.

However, earnings growth is flattening out this year, earning a "C" Earning Power Trend grade. The company is still growing and leveraging its loyal customers to own the middle turf of the genomics revolutions. This means it receives an overall "B" performance grade.

Finding high-performing companies like Thermo Fisher Scientific is only the first step in the stock-picking process... 

If other investors have already come to expect that performance, then a stock may already be too expensive. But in our Altimetry's Hidden Alpha newsletter, we identify large-cap companies that trade cheaper than their expected performance would imply... which means these picks come with massive upside opportunities.

In the most recent issue of Hidden Alpha, we identified a pharma stock with massive upside. Our recent recommendation is one of the world's biggest pharmaceutical and biotech companies... and its real transformation is unknown to most investors right now... 

You can access these ideas for less than a cup of coffee a week at $49 for the first year – learn more about our Hidden Alpha newsletter by clicking here. 

Regards,

Rob Spivey
November 4, 2021