The Top 3 Stocks in the High-Potential ‘Cancer Testing’ Market
Blood tests for dozens of types of cancer have been invented. These tests, known as liquid biopsies, could save tens of millions of lives. That’s because there’s currently no good screening procedures for many types of cancers, such as pancreatic cancer and lung cancer. And by the time the tumors cause symptoms, it’s usually too late to save the patients’ lives. Also noteworthy is that these diagnostics, or multi-cancer early detection tests (MCEDs), can save hospitals and health insurers a great deal of money.
Given these points, I believe that the MCEDs will eventually be very profitable, once they become accepted by society and are deployed by healthcare professionals. Indeed, according to one estimate, liquid biopsies will generate $29.8 billion of annual revenue by 2035. Here are three of the best disease testing stocks.
Exact Sciences (EXAS)
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In June, Baylor Scott & White, a massive hospital chain, agreed to administer about 50,000 of Exact Science’s (NASDAQ:EXAS) MCED tests to its patients. I believe that Baylor is administering these tests in an effort to determine if they can save it money.
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For example, if Baylor administers the test to an uninsured patient who regularly uses its ER for routine care, and the test shows that the patient is in the early stages of pancreatic cancer, Baylor can treat that patient much cheaper than if they arrive at the ER with late-stage pancreatic cancer. Moreover, Baylor can charge its wealthier patients a high price to obtain the test.
I believe that, later this year, Baylor will announce that the test has been a tremendous success. And order a large number of them from Exact Sciences, sparking a huge rally by EXAS stock. Moreover, I predict that that many other hospitals will ultimately follow Baylor’s lead, propelling Exact’s shares even higher and making it one of the best disease testing stocks to buy.
Illumina (ILMN)
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Illumina (NASDAQ:ILMN) owns GRAIL which has its own MCED test. However, due to regulatory issues, Illumina is being forced to either sell or divest GRAIL. ILMN stock has tumbled nearly 75% from its all-time highs, largely due to uncertainty over GRAIL’s fate, and the losses that GRAIL generated as a result of its high legal and R&D costs.
But if Illumina sells GRAIL, it expects to obtain $7 billion to $10 billion in the deal, while its current market capitalization is only $21.9 billion. Moreover, the transaction is expected to cause its operating margin to rise to 25% from its current 22.5% level. As a result, a sale of GRAIL is likely to tremendously boost ILMN stock.
Instead, Illumina may choose to retain a stake in GRAIL or conduct an IPO of the company. In that case, Illumina’s shareholders will eventually benefit from the large-scale utilization of GRAIL’s test by consumers and hospitals.
Quest Diagnostics (DGX)
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In 2021, Quest (NYSE:DGX) agreed to aid GRAIL in administering its liquid biopsy test. Consequently, I believe that DGX stock will get a big boost over the longer term from the widespread use of GRAIL’s tests by consumers. Eventually, Quest could make similar deals with other firms that have developed liquid biopsy tests.
The forward price-earnings ratio of DGX stock is an attractive 15, while analysts, on average, expect its earnings per share to climb to $9.03 in 2024 from $8.71 last year.
On the date of publication, Larry Ramer held a long position in EXAS. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Larry Ramer has conducted research and written articles on U.S. stocks for 15 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been SMCI, INTC, and MGM. You can reach him on Stocktwits at @larryramer.
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