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3 Medical Diagnostics Stocks in Focus on Long-Term Potential

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The past one-and-a-half years saw the medical diagnostics sector reach its zenith. In the wake of the pandemic, the demand for molecular testing, regarded as the gold standard for diagnosing infectious diseases, exploded. Accordingly, diagnostic testing remained the backbone of the COVID-19 response, supporting containment efforts to mitigate the outbreak.

In Europe and the United States alone, molecular-diagnostic demand rose 20-fold between March and October 2020.

However, with extensive vaccine rollout and improved virus outlook, the month of May has seen a record drop in death toll as well as new COVID-19 cases. Accordingly, many market watchers who had high hopes on the diagnostic testing space are rather doubtful now.

Let us delve deeper.

Improving COVID-19 Scenario

Per a report by Statista, the United States saw around 20,641 new COVID-19 cases as on Jun 3, 2021, and on Biden’s latest announcement of “all-of-America sprint” holding a buoyant target of completing the nation’s vaccination rollout by Jul 4, the virus outlook is improving drastically in the country.

The Center of Disease Control and Prevention’s last update shows that 51.5% of the total U.S. population has received at least one dose while 41.9% of the entire population got fully vaccinated.

Irrespective of whether Biden’s Jul 4 target is met, the entire series of events might lead to a significant drop in demand for COVID-19 diagnostic testing kits.

In line with this, Abbott Laboratories ABT, on Jun 1, 2021, downgraded its 2021 outlook on drop in recent and projected demand for COVID-19 testing. The company believes the reduced demand is due to a declining number of COVID-19 cases in the United States and other developed countries, speed-up of COVID-19 vaccine rollout, and the U.S. health authority guidance on testing for fully vaccinated individuals. Quidel (QDEL) too in March talked about a reduction in demand for its coronavirus testing kits.

Silver Lining

Some of the market analysts believe the President’s latest full-vaccination target is overly optimistic. Going by an ABC News Article, “The U.S. still needs to vaccinate roughly 20 million adults in the next month to reach Biden's goal by July Fourth.”

Further, the virus remains dangerous in communities with low vaccination rates and with de-mask, return to office work, and start to be in closer proximity to others again, cold and flu virus challenges will likely come at a cost. We believe the demand for testing will continue to stay till the time a concrete proof of herd immunity comes into existence.

Also, as COVID-19 dissipates, cases of respiratory syncytial virus (RSV) started picking up in a number of places in the United States. Nearly 10 times of the cases reported normally have been reported since mid-May. With the rising cases of other flu and viruses, testing continues to be crucial.

Per an article by STAT, as in-person teaching resumed in Hong Kong schools, several cases of Rhinoviruses -- the most common cause of common cold -- surged, making many children sick. With reopening of schools in other parts, respiratory virus transmission is expected to rise, which is indicative of the need of testing in a post-pandemic world as well.

Testing Stocks With Long-Term Potential

These three testing stocks are expected to thrive in a post-pandemic world on continued product innovation.

One of the largest providers of commercial laboratory services in North America, Quest Diagnostics, Inc. DGX is expected to witness growth in direct-to-consumer testing opportunity following the COVID-19 pandemic, as patients seek greater control of their health care and the crisis accelerates the shift to digital technologies. Per a Bloomberg article, direct-to-consumer testing for medical needs like colorectal cancer and others could bring in $250 million in revenues for Quest by 2025, in a total market worth about $2 billion.

This Zacks Rank #3 (Hold) company’s long-term expected earnings growth rate is pegged at 26.5%. The stock has gained 10.3% in a year’s time compared with the industry’s 1.8% rise. You can see the complete list of Zacks #1 Rank (Strong Buy) stocks here.

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Zacks Investment Research

Thermo Fisher Scientific, Inc. TMO is a well known scientific instrument maker and a world leader in serving science. This Zacks Rank #3 company is expected to reap the benefits of its growing installed bases of PCR instruments beyond the COVID-19 pandemic. In February 2021, Thermo Fisher acquired privately-held molecular diagnostic maker -- Mesa Biotech -- for $450 million, adding Mesa's PCR-based rapid point-of-care test platform for SARS-CoV-2, Influenza A and B, RSV and Strep A to its portfolio. Through the pandemic, the company demonstrated its ability to scale up its mRNA vaccine manufacturing. Soon, that same technology will be used to create vaccines for other viruses. Considering the continued innovation and expansion, Thermo Fisher is expected to come out stronger post-pandemic.

Its long-term expected earnings growth rate is pegged at 19.5%.The stock has gained 28.3% in a year’s time compared with the industry’s 11.4% rise.

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Zacks Investment Research

Headquartered in Burlington, NC, Laboratory Corporation of America Holdings or LabCorp LH is a leading healthcare diagnostics company. This Zacks Rank #3 company continues to add complementary capabilities through targeted acquisitions. Recently, the company entered into a definitive agreement to acquire select operating assets and intellectual property (IP) from Myriad Genetics’ autoimmune business unit, including the Vectra rheumatoid arthritis (RA) assay. Also, the Phase II of LaunchPad initiative in Diagnostics arm is expected to deliver $200 million of savings by the end of 2021 and is expected to streamline the company’s business, unlock new avenues for growth and contribute to improvement in the long-term margins.

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Zacks Investment Research

Its long-term expected earnings growth rate is pegged at 10.6%. The stock has gained 46% in a year's time compared with the industry’s 19.6% rise.

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.

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Quest Diagnostics Incorporated (DGX) : Free Stock Analysis Report

Abbott Laboratories (ABT) : Free Stock Analysis Report

Laboratory Corporation of America Holdings (LH) : Free Stock Analysis Report

Thermo Fisher Scientific Inc. (TMO) : Free Stock Analysis Report

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