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Why Agilent Technologies (A) Stock is a Compelling Investment Case

Alex Smith
·5 mins read

Pershing Square Capital Management recently released its Q2 2020 Investor Letter, a copy of which you can download here. The fund posted a return of 28.9% during the first half of 2020, outperforming its benchmark, the S&P 500 Index which returned -3.1% in the same period. You should check out Pershing Square's top 5 stock picks for investors to buy right now, which could be the biggest winners of the stock market crash.

In the said letter, Pershing Square highlighted a few stocks and Agilent Technologies Inc. (NYSE:A) is one of them. Agilent Technologies Inc. (NYSE:A) is a leader in life sciences, diagnostics and applied chemical markets. Year-to-date, Agilent Technologies Inc. (NYSE:A) stock gained 18.0% and on August 28th it had a closing price of $99.90. Here is what Pershing Square said:

"Agilent’s fiscal third quarter results were demonstrative of the company’s high-quality, resilient business model and significant margin expansion opportunity. In what the company expects to be its most challenging quarter of the year, organic revenue declined only 3%, supported by stable performance in its CrossLab service and consumables segment, which grew 1%. While the pace of recovery throughout the quarter varied by region depending on when each region faced the brunt of the pandemic, the company exited July with positive growth across all of its regions. Notably, even with a modest revenue decline, the company was able to expand operating margins by 90 basis points year-over-year by effectively managing its cost structure. Agilent’s stock has increased 16% year-to-date.

Since the onset of the pandemic, Agilent has outperformed its comparable peer group with meaningfully lower revenue declines than peers. Despite the ongoing disruption from the pandemic, the company remains highly focused on product innovation and sales efforts to drive market share gains. For example, in its service business, Agilent introduced new workflow solutions to capitalize on the trend of labs outsourcing multiple services to a single vendor. The company has recently won several large, lab-wide, enterprise service contracts. Likewise, in its instrument portfolio, Agilent launched two new mass spectrometry product lines aimed at increasing testing throughput and reducing downtime. We expect these initiatives to drive long-term sales growth as they expand the installed base of Agilent instruments, and increase the penetration of its service and consumables off erings.

We are encouraged by Agilent’s ability to expand operating margins over the last two quarters by 50 and 90 basis points year-over-year, respectively, despite facing modest revenue declines from the pandemic. This improvement in operating profitability in a highly challenging environment highlights the magnitude of the company’s future margin expansion potential. We believe the pandemic has provided the company with a timely opportunity to closely review its discretionary overhead expenses and accelerate investments in digital tools and capabilities. Agilent was able to deliver cost savings without furloughing a single employee. The resulting organizational stability has allowed the Agilent team to remain focused on engaging with customers and driving new business.

With increasing visibility on improving business conditions, the company resumed its share buyback program which it had temporarily suspended in March. We continue to believe Agilent’s current valuation does not give suffi cient recognition to the company’s high-quality business model, strong revenue growth outlook, and signifi cant margin expansion potential."

15 Biggest US Government Cover Ups of All Time
15 Biggest US Government Cover Ups of All Time

Tonhom1009/Shutterstock.com

In Q1 2020, the number of bullish hedge fund positions on Agilent Technologies Inc. (NYSE:A) stock decreased by about 24% from the previous quarter (see the chart here), so a number of other hedge fund managers don't seem to agree with Agilent's growth potential. Our calculations showed that Agilent Technologies Inc. (NYSE:A) isn't ranked among the 30 most popular stocks among hedge funds.

The top 10 stocks among hedge funds returned 185% since the end of 2014 and outperformed the S&P 500 Index ETFs by more than 109 percentage points. We know it sounds unbelievable. You have been dismissing our articles about top hedge fund stocks mostly because you were fed biased information by other media outlets about hedge funds' poor performance. You could have doubled the size of your nest egg by investing in the top hedge fund stocks instead of dumb S&P 500 ETFs. Below you can watch our video about the top 5 hedge fund stocks right now. All of these stocks had positive returns in 2020.

Video: Top 5 Stocks Among Hedge Funds

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock.. We go through lists like the 10 most profitable companies in America to pick the best large-cap stocks to buy. 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. You can subscribe to our free enewsletter below to receive our stories in your inbox:

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