Illumina Stock Price Says Buy Me Now!
Illumina stock (NASDAQ:ILMN) represents a picks and shovels play on some of the most exciting disruptive technologies we discuss here on Nanalyze like genetic testing, synthetic biology, gene editing, and pretty much each and every technology theme that involves analyzing genes. That isn’t even the most compelling reason to want to invest in Illumina. We’ve talked before about their exciting venture called Helix which will be the world’s largest next-generation sequencing lab and which will serve as a neutral platform for other companies to build applications on. We also talked about their other venture called Grail, a universal blood test to identify early-stage cancers in people with no symptoms of the disease. If ILMN can’t eek some organic growth from either of those ventures, maybe they can go dip into the $1.3 billion in cash they have on hand to make some acquisitions. There is a lot to like about Illumina stock from where we sit. So why is the U.S. market opening shortly with ILMN down -26% in pre-market trading to $135 per share?
The reason for this is (presumably) that ILMN issued guidance that revenues for Q3-2016 were coming in at $607 million which represents a year-over-year increase of only +10%. All those pundits out there who seem to know everything about the stock market yet still have to go work at a job every morning, thought that this number should be more around the range of $625 to $630 million. This means that all the analysts refreshed their stock valuation spreadsheets that they learned how to build during their MBA programs, and then promptly decided to sell the isht out of the stock. Does that change in guidance really merit a -26% drop in the stock price? Who cares. This is a buying opportunity with an indefinite holding time frame and this is as good a time to buy Illumina stock as any. ILMN has historically been a very volatile stock so be prepared to stomach more volatility along the way. This is a stock that has returned +700% over the past 10 years and is off their all time high of almost $240 per share. If you think Illumina stock will fall even lower, accumulate your position over 3 weeks while buying a 3rd at a time (also called dollar cost averaging). It is already quite low though as it’s only 6% above the 52-week low of $127.10 per share.
A majority of the publicly traded stocks we cover here on Nanalyze we don’t actually invest in ourselves. This is because we invest the majority of our spare change in more risk averse investing strategies like dividend growth investing (DGI) . Sure, we’ll dabble in the occasional small purchase of this or that disruptive technology stock. We made a small investment in Bind Therapeutics (OTCMKTS:BINDQ) a few years ago and had our a33 handed to us. We also bought shares in Intrexon (NYSE:XON) around the time they had their IPO and now we’re sitting on some nice paper gains. Frankly, both of these were speculative holdings in that we wanted a dog in the race but we knew risks were very high. BIND went bankrupt this year. XON had some articles on Seeking Alpha a while back that all but called the Company a complete scam. Both of these investments are very high risk. We don’t have enough conviction in either of them to “double down” if things appear to be turning south.
Illumina stock on the other hand, we’re already holding and will buy even more of. It is a $24 billion company that dominates with an over 80% market share of providing the “picks and shovels” for some of the most exciting disruptive technologies there are today. They also enjoy consistent profitability and strong revenue growth as seen below:
We typically shy away from covering larger companies because there are 100s of analysts who already do this, analysts who do nothing but pore over these companies day in and day out. We don’t have those sorts of resources nor do we ascribe to the “buy GOOG, invest in everything” notion that seems to plague the investment community (though we do hold a sizable number of Google shares we bought around the time they had their IPO). Giant tech companies we’ve covered before like IBM may make a great investment for other reasons but they don’t give us the sort of pure-play exposure to artificial intelligence we’re looking for yet. What we have found is that disruptive technology companies mostly exist as venture capital backed startups. These startups often become publicly traded stocks via an IPO which means they will usually begin trading with very small market caps. Intrexon (NYSE:XON) as an example, had a market cap of just $3 billion following their IPO 3 years ago. You won’t see larger cap pure-play disruptive technology stocks very often.
Illumina (NASDAQ:ILMN) is one of those rare large companies that is actually a pure-play on a single theme (genetics in this case). Just last month there were rumors about ILMN being acquired by Thermo Fisher Scientific (NYSE:TMO) which means a few things. Firstly, Illumina won’t be a picks-and-shovels pure-play on genetics anymore when they get acquired. Secondly, today’s drop in ILMN shares would increase the attractiveness of the company for a possible future acquisition. Any way you look at it, if you want to make an investment in a company that builds the “picks and shovels” used for all genetics research, then now appears like it could be a good opportunity to “start accumulating a position” as they say.
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