Businesses are slowly resuming contact-intensive activities consistent with progress on the COVID-19 vaccination front. Also, rising Treasury bond yields point to the beginnings of an economic recovery. Seeing this, investors have begun rotating out of pricey growth stocks—which have outperformed amid the pandemic—and into quality bargains. This is evident in the SPDR Portfolio S&P 500 Growth ETF’s (SPYG) 8.2% decline over the past month versus the SPDR Portfolio S&P 500 Value ETF’s (SPYV) 4.5% gain.
The IMF projects the global economy will grow 5.5% this year after an estimated 3.5% contraction last year. While this is another factor motivating investors to bet on potential turnaround candidates in lieu of overvalued growth stock, there are some growth stocks that may not feel the impact of this rotation significantly, given their importance in providing goods and services that meet pandemic-driven trends. For example, the demand for tech solutions to maintain work-from-home structures even after the pandemic will be beneficial to the providers of such solutions.
We believe Microchip Technology Incorporated (MCHP), Agilent Technologies, Inc. (A), Hologic, Inc. (HOLX), and PerkinElmer, Inc. (PKI) possess solid growth attributes and still have plenty of upside.
Microchip Technology Incorporated (MCHP)
MCHP is a leading provider of smart, connected and secure embedded control solutions through specialized semiconductor products. The company’s easy-to-use development tools and comprehensive product portfolio enable customers to create optimal designs, which reduce risk while lowering total system cost and time to market. It operates through two segments: semiconductor products and technology licensing.
In February, MCHP unveiled the first hardware-based audio endpoint solution for Vehicle Ethernet Audio Video Bridging (AVB), the LAN9360. This audio endpoint controller will help engineers reduce development time and allow them to avoid months of engineering work and technical risks involved in coding or engaging third-party integrators. This could prove to be MCHP’s breakthrough product for Ethernet interoperability in infotainment systems.
Also in February, MCHP expanded its SA50-120 power converter family with nine new units based on its Commercial Off-the-Shelf (COTS) technology. This technology will provide developers with space-qualified power converters that will d help to minimize risk and lower development costs.
MCHP has gained 210.6% over the past five years owing to its impressive earnings growth. Its net income has increased at a CAGR of 10.7% over the past three years, while its total assets have grown at a CAGR of 26.8% over the same period.
MCHP’s net sales have increased 5% year-over-year to $1.35 billion in the fourth quarter ended December 31. Its operating income has risen 87.2% from its year-ago value to $245.60 million, while its non-GAAP EPS has improved 22.7% to $1.62 over the same period.
Analysts expect MCHP’s revenues to grow 9.6% year-over-year to $1.45 billion in the current quarter (ending March 31, 2021). A consensus EPS estimate of $1.74 in the first quarter represents a 19.2% improvement from its year-ago value. The company has an impressive earnings surprise history; it beat the Street’s consensus estimates in each of the trailing four quarters. The stock has gained 64% over the past year.
MCHP’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
MCHP has a Growth Grade of A and a Momentum Grade of B. Within the B-rated Semiconductor & Wireless Chip Industry, it is ranked #39 of 99 stocks.
In total, we rate MCHP on eight different levels. Beyond what we’ve stated above, we have also given MCHP grades for Quality, Stability, Value and Sentiment. Get all of MCHP’s ratings here.
Agilent Technologies, Inc. (A)
Agilent, a global leader in the life sciences, diagnostics, and applied chemical markets, provides application focused solutions that include instruments, software, services and consumables for the entire laboratory workflow. The company operates through three business segments: life sciences and applied markets business, diagnostics and genomics business, and Agilent CrossLab business.
Earlier this month, Agilent entered an agreement to acquire Resolution Bioscience Inc. for approximately $550 million in cash. The acquisition will complement and expand Agilent’s capabilities in NGS-based cancer diagnostics and provide the company with innovative technology to further serve the needs of the fast-growing precision medicine market.
Last month, Agilent launched an ELISA kit intended for the qualitative detection of SARS-CoV-2 antibodies in human serum or plasma. The kit has completed the notification process to the U.S. FDA. This ready-to-use solution will allow labs to consistently execute dependable SARS-COV-2 serological testing.
Agilent’s revenues have increased at a CAGR of 6.2% over the past three years, while its EPS rose at a CAGR of 62.9% over the same period. The company’s impressive track record positions it well to emerge as a leading player in the medical research industry.
Agilent’s net revenues have increased 14.1% year-over-year to $1.55 billion for the fiscal first quarter ended January 31, 2021. Its income from operations has risen 52.6% from its year-ago value to $328 million, while its non-GAAP EPS has improved 30.9% to $1.06 over the same period.
Analysts expect A’s revenues to grow 16.3% year-over-year to $1.39 billion in the current quarter (ending April 30, 2021). A consensus EPS estimate of $0.82 in the second quarter represents a 15.5% improvement from the year-ago value. The company has an impressive earnings surprise history; it beat consensus Street estimates in each of the trailing four quarters. Agilent has gained % over the past year.
It is no surprise that Agilent has an overall rating of A, which translates to Strong Buy in our POWR Ratings system. Agilent has a Growth Grade of A and a B for Quality and Value. It is ranked #1 of 60 stocks in the Medical - Diagnostics/Research Industry.
Click here to see the additional POWR Ratings for A (Stability, Momentum, and Sentiment).
Hologic, Inc. (HOLX)
HOLX manufactures diagnostic equipment with a focus on women’s health products. Its diverse equipment portfolio can be used for multiple purposes, ranging from diagnosis to treatment. The company operates through four segments—Diagnostics, Breast Health, GYN Surgical and Skeletal Health. HOLX has an international supply chain facilitated through direct sales, service forces and independent distributors.
Last month, the company announced a multi-year strategic collaboration with Alphabet Inc.’s (GOOGL) Google Cloud that is expected to feature the integration of Google Cloud’s machine learning (ML) technologies with HOLX’s Genius Digital Diagnostics System. This is expected to transform screening and accelerate the eradication of cervical cancer worldwide.
In January, , HOLX acquired two companies--Biotheranostics and SOMATEX--for a combined $294 million. Biotheranostics is a leading company in the field of molecular tests and breast cancer detection, while SOMATEX specializes in Biopsy site markers and localization technology. These acquisitions should allow HOLX to expand its range of specialty treatments, which will attract higher volumes of customers.
And last December, , the company received FDA approval for its proprietary Genius AI technology for cancer detection. This allows HOLX to market its breakthrough product across the United States.HOLX has gained 87.2% over the past three years owing to its impressive revenue and earnings growth. Its revenues have increased at a CAGR of 13.3% over the past three years, while its EBITDA has grown at a CAGR of 31.1% over the same period.
HOLX’s revenue has increased 89.3% year-over-year to $1.61 billion in the fiscal first quarter ended December 26. Its U.S. segment revenue increased 79.8% from the year-ago value to $1.14 billion, and international revenue increased 116.7% to $472 million. Its gross margin has improved 2230 basis points from the prior-year quarter to 73.3%, while its EPS improved 74.8% to $2.50 over the same period.
Analysts expect HOLX’s revenues to grow 101.7% year-over-year to $1.53 billion in the current quarter (ending March 31, 2021). A consensus EPS estimate of $2.57 in the second quarter represents a 350.9% improvement year-over-year. The company has an impressive earnings surprise history; it beat consensus Street estimates in three of the trailing four quarters. HOLX has gained 52.8% over the past year.
The POWR Ratings are also high on HOLX. It has an Overall Rating of A, which translates to a Strong Buy. HOLX also has an A grade for Growth and Value and a B for Momentum and Quality. In the 181-stock Medical - Devices & Equipment Industry, it is ranked #1.
Click here to see the additional POWR Ratings for HOLX (Stability and Sentiment).
PerkinElmer, Inc. (PKI)
Based in Massachusetts, PKI provides products, services, and solutions to the diagnostics, life sciences, and applied services markets worldwide. The company operates through two segments: Discovery & Analytical Solutions and Diagnostics.
Last month, PKI expanded its portfolio of SARS-CoV-2 testing solutions with the launch of PerkinElmer COVID-19 Antigen Test, which is benchmarked against gold standard RT-PCR. This latest addition to the company’s portfolio of SARS-CoV-2 testing solutions can obtain a positive or negative result in as little as 15 minutes to facilitate immediate isolation or treatment decisions. The company expects this to be an exceptionally reliable antigen test that can support the reopening strategies of organizations worldwide.
In January, PKI entered an agreement to acquire Oxford Immunotec Global PLC (OXFD) for approximately $591 million in cash. This acquisition will further expand PKI’s portfolio of advanced infectious disease testing solutions to include tuberculosis detection and to also benefit from OXFD’s leading proficiencies in T cell immunology, along with its proprietary test kits for latent tuberculosis.
PKI’s EPS has increased at a CAGR of 66% over the past three years, while its leveraged free cash flow rose at a CAGR of 41.1% over the same period.
PKI’s revenues have increased 68.2% year-over-year to $1.35 billion in the fiscal fourth quarter, ended January 3. Its adjusted operating income has risen 197% from its year-ago value to $571.20 million, while its adjusted EPS has improved 193.3% to $3.96 over the same period.
Analysts expect PKI’s revenues to grow 82.1% year-over-year to $1.19 billion in the current quarter (ending March 31, 2021). A consensus EPS estimate of $3.02 in the first quarter represents a 350.7% improvement from its year-ago value. The company has an impressive earnings surprise history; it beat consensus Street estimates in each of the trailing four quarters. The stock has gained 46.6% over the past year.
PKI’s POWR Ratings reflect this promising outlook. The stock has an overall rating of A, which translates to Strong Buy in our rating system. PKI has an A grade for both Value and Growth and B for Sentiment. It is currently ranked #10 of 181 stocks in the Medical - Devices & Equipment Industry.
We have also given PKI grades for Momentum, Stability, and Quality. Get all of PKI’s ratings here.
The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
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MCHP shares were trading at $145.46 per share on Tuesday afternoon, up $8.71 (+6.37%). Year-to-date, MCHP has gained 5.58%, versus a 3.55% rise in the benchmark S&P 500 index during the same period.
About the Author: Rishab Dugar
Rishab is a financial journalist and investment analyst. His investment approach is to focus on quality stocks, trading at low prices, with business models that he readily understands.
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