The stock market is in the midst of an impressive and massive bear market rally. Since the low on June 17, the S&P 500 is up nearly 16%. Some of the major catalysts behind the rally are…
an unwinding of extreme levels of bearish sentiment, better than expected economic data, and marginal progress on the inflation front. Of course, there is a lively debate about whether this is a new bull market or a bear market rally that will inevitably roll over.
What cannot be debated is that biotech stocks are leading the market higher. Since the June lows, the iShares Biotechnology Index (IBB) is up 29%, nearly double that of the S&P 500. The sector also made a double bottom in June with the May lows, while the broader market made a lower low.
Among biotech stocks, investors should target fundamentally strong companies with powerful catalysts. That is why I want to talk about a biotech stock – Bio-Techne (TECH) – with major upside and all the characteristics of a market leader in today’s article.
TECH is a supplier and manufacturer of biological materials like high-quality purified proteins and reagents like cytokines, growth factors, and antibodies that are used by pharmaceutical and biotech companies for their drug development and testing processes, specifically for genetic and cellular-based therapies. In addition to this, it also provides instruments and custom manufacturing solutions.
Thus, TECH provides investors with exposure to the genomics industry which is expected to grow at a 19.8% rate over the next decade. As a supplier to the industry, it has less risk than investing in the companies using genomics to develop drugs and bring them to market.
Every stock market strategy has its day in the sun. I believe this is a time when GARP investors are going to see stunning returns.
For one, growth stocks have been mired in a brutal bear market for more than a year. Second, bearish headwinds in the form of rising inflation and long-term rates have ameliorated which means that investors need to start targeting, high-quality companies especially ones that are growing earnings.
TECH certainly has strong growth characteristics given that earnings are expected to double over the next year. Its recent earnings report showed a 17% increase in revenue. Unlike most companies, it’s also seeing operating margins expand.
While TECH is certainly not cheap on a forward valuation basis with a P/E of 39, it’s quite cheap when pricing in its long-term growth rate, attractive business model, and growth of the overall industry.
For the full year, analysts are forecasting $7.95 in EPS and $1.1 billion in revenue which would be improvements of 17% and 18%, respectively. The company has a good mix of slow and steady growth from its older reagent business with strong growth, albeit from a small base, in its genetic and cell therapy products.
On a longer-term basis, biotech stocks are one of the few areas of the market offering good value. This is evident in that about 40% of small and mid-cap biotech stocks have more cash on their balance sheets than their market cap. The longer-term bull case remains intact as the cost of drug development continues to…
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