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Is Danaher Corporation (DHR) A Smart Long-Term Buy?

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Cooper Investors, an investment management firm, published its “Cooper Investors Global Equities Fund (Hedged)” second quarter 2021 investor letter – a copy of which can be downloaded here. For the 3 months and 12 months to June 30th, the Fund returned 7.97% and 32.87% respectively, while its benchmark, by comparison returned 7.05% and 35.32% over the same period. You can take a look at the fund’s top 5 holdings to have an idea about their top bets for 2021.

In the Q2 2021 investor letter of Cooper Investors, the fund mentioned Danaher Corporation (NYSE: DHR), and discussed its stance on the firm. Danaher Corporation is a Washington, D.C.-based science and technology innovator, that currently has a $219.3 billion market capitalization. DHR delivered a 38.33% return since the beginning of the year, extending its 12-month returns to 49.60%. The stock closed at $307.28 per share on August 06, 2021.

Here is what Cooper Investors has to say about Danaher Corporation in its Q2 2021 investor letter:

"During the quarter the Fund’s largest holding Danaher made a notable acquisition, spending US$9bn (~5% of its market cap) to buy privately held Aldevron, a leading player in the fast growing field of genomic medicine. Over the years Danaher has built up a unique portfolio of life science and diagnostic assets. Their key life sciences businesses involve providing the tools and services to research, develop and manufacture biotech drugs. For example, they are a key provider to over 400 COVID vaccine and therapeutic projects globally.

Aldevron expands Danaher’s capability into gene therapy. Aldevron is a supplier of key ingredients for the next generation of therapies, namely cell and gene therapy and mRNA vaccines. Aldevron is the leader in these fields and this deal puts Danaher in pole position to participate in the wave of innovation occurring in this space.

The acquisition multiple is high - Danaher are paying US$9bn for what today is a US$500m revenue business but growing 30% a year with 40% operating margins, in our view justifying the high price. Importantly, management can see an investment return in line with recent acquisitions. As a reminder Danaher’s history and skill set is acquiring businesses, it is how the company has been successfully built over 35 years. The shares were up 4% on the news and have gained nearly 20% for the quarter. Most companies would be sold down off the back of an announcement like this but Danaher has a long multidecade track record of successful acquisitions and this fits a similar enough pattern.

The opportunity is to grow Aldevron into a multibillion dollar business given the growth in genomics and RNA innovation that’s occurring and as more of these types of therapeutics become approved. Overall as a key supplier with deep global networks across life sciences and medical research Danaher is very well placed to continue growing with the innovation in biotech and diagnostic markets. It remains an incredibly well run company and a high conviction investment in the Fund."

Photo by DocuSign on Unsplash

Based on our calculations, Danaher Corporation (NYSE: DHR) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. DHR was in 81 hedge fund portfolios at the end of the first quarter of 2021. Danaher Corporation (NYSE: DHR) delivered an 18.88% return in the past 3 months.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 115 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, pet market is growing at a 7% annual rate and is expected to reach $110 billion in 2021. So, we are checking out the 5 best stocks for animal lovers. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage.

Disclosure: None. This article is originally published at Insider Monkey.