I spend over 20 hours a week searching for and studying healthcare companies in over a dozen unique industries from biotechnology to surgical instruments.
My goal is to find long-term investment opportunities for my 30-stock portfolio at Zacks called Healthcare Innovators.
And when I find a small innovator with big potential, I like to share it with as many investors as I can. This doesn't mean you should rush out and buy the two stocks I am highlighting in the video that accompanies this article.
First, you have to do some more homework to inform your investment decision. Lucky for you, I already have your assignments prepared.
Invitae NVTA: Medical-Grade Genetic Insight
This $2 billion genetics information and testing company provides diagnostics for hereditary disorders including cardiovascular and neurological disorders as well as breast, colon and pancreatic cancers. And beyond identifying existing health issues, physicians and patients are realizing the power of proactive screening throughout the human life cycle.
As such, Invitae is making a strong push into reproductive health with carrier screening, fertility and perinatal health, and prenatal and neonatal testing.
Invitae delivered a mixed earnings report on Tuesday with a 14% miss on revenues. Despite 47% year-over-year growth in both test volume and revenues, the stock is down 20% and I think it is setting up a great buying opportunity between $17 and $19. Let me explain why I will be buying more shares here...
The company has been growing sales dramatically the past two years:
2016: $25 million
2017: $68 million = +172% growth
2018: $148 million = +118% growth
2019: $224 million = +51.6% growth projected
If this year pans out, the CAGR for 3 years will be 108%! And the forward price-to-sales ratio is not too hot -- for this growth, in this industry -- at under 8X (using $250M which should be hit by Q1 2020).
The company will deliver 500,000 tests this year and management expects to hit 1 million in 2020 as demand for genetic information from patients and caregivers ramps up. And that's why the company stuck to its revenue forecasts of $220 million this year and $500 million in 2020.
Why NVTA Shares Launched from $16
After Invitae's Q4 2018 report in late Feb, where they highlighted the volume growth of 102% that fueled the second-consecutive year of triple-digit sales growth, the stock jumped from $16 and hasn't looked back, until today.
And it did this while powering through a 10+ million share secondary offering at $19 that raised nearly $200 million. It will be very interesting to see if shares can hold above $19 this week.
Investment banks like Oppenheimer, Cowen, and Leerink took notice of the company growth in April and raised price targets to between $29 and $30.
Invitae analyst commentary at Oppenheimer, April 8
Oppenheimer analyst Kevin DeGeeter raised his price target for Invitae to $30 from $21 based on improved long-term competitive positioning for the company's patient-initiated testing given data presented at The American College of Medical Genetics and Genomics (ACMG) annual meeting, where there was demonstrated poor performance for a leading DTC (direct-to-consumer) genetic test.
That DTC kit could be from 23andMe or Ancestry, which do not claim to provide complete health-related insights. The point is that Invitae provides medical-grade genetic diagnostics that physicians and genetic counselors can rely on for patient advice and care.
Invitae, with its expertise and proprietary lab technologies, will also be able to capitalize on potential consolidation in the DTC market as the industry matures and economies of scale, quality and quantity of clinical data, and regulatory oversight drive market share.
And the company just got some great news in late April as giant health insurer UnitedHealthcare UNH chose Invitae as just one of seven labs covered in a new group of diagnostics providers called the Preferred Laboratory Network (PLN).
In their Q1 report Tuesday, they also revealed they added 8 new BioPharma partnerships to their existing 40 collaborations. Both of these aspects create a geometric network of care providers and patients to which Invitae can deliver a lifetime of innovative tests.
Your NVTA homework: View the recent 20-slide Invitae investor presentation to understand their opportunities in an enormous market.
Tabula Rasa Healthcare TRHC: The Google of Medical Records
Tabula Rasa HealthCare is a $1.2 billion medical IT firm focused on patient-specific, data-driven technology and solutions which enable healthcare organizations to optimize medication regimens to improve patient outcomes, reduce hospitalizations, lower healthcare costs and manage risk.
The company's cloud-based software applications, including platforms EireneRx and MedWise Advisor, deliver control and certainty to payers, providers and other healthcare organizations. And their innovative use of artificial intelligence technologies and cross-provider integrations for doctors and pharmacies to cross-reference prescription complications is becoming more important in an aging population taking more medicines.
Tabula Rasa is expected to grow sales 40% this year to $285 million. And next year is projected to top $350 million in revenues, making shares trade for under 3.5X sales.
To learn more about Tabula Rasa, including why a hedge fund taking a peer private for $5.7 billion is great news, see my recent article...
Your TRHC homework: Bull of the Day: Tabula Rasa HealthCare
Disclosure: I own NVTA and TRHC shares for the Zacks Healthcare Innovators portfolio.
Breakout Biotech Stocks with Triple-Digit Profit Potential
The biotech sector is projected to surge beyond $775 billion by 2024 as scientists develop treatments for thousands of diseases. They’re also finding ways to edit the human genome to literally erase our vulnerability to these diseases.
Zacks has just released Century of Biology: 7 Biotech Stocks to Buy Right Now to help investors profit from 7 stocks poised for outperformance. Our recent biotech recommendations have produced gains of +98%, +119% and +164% in as little as 1 month. The stocks in this report could perform even better.
See these 7 breakthrough stocks now>>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Invitae Corporation (NVTA) : Free Stock Analysis Report
Tabula Rasa Healthcare Inc. (TRHC) : Free Stock Analysis Report
UnitedHealth Group Incorporated (UNH) : Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research