In this series of articles, I will be taking a look at various industry sectors and selecting what I believe will be outperforming stocks for 2015. In Part 1, I reviewed 47 stocks within the Aerospace and Defense industry sector. For part 37, in determining my favorite stocks in this sector for 2015, I will review the following Life Sciences Tools & Services stocks:
- Accelerate Diagnostics (NASDAQ:AXDX)
- Affymetrix (NASDAQ:AFFX)
- Agilent Technologies (NYSE:A)
- Albany Molecular Research (NASDAQ:AMRI)
- Bio-Rad Laboratories (NYSE:BIO)
- Bio-Techne (NASDAQ:TECH)
- Bruker (NASDAQ:BRKR)
- Cambrex (NYSE:CBM)
- Charles River Laboratories International (NYSE:CRL)
- Harvard Bioscience (NASDAQ:HBIO)
- Icon (NASDAQ:ICLR)
- Illumina (NASDAQ:ILMN)
- Luminex (NASDAQ:LMNX)
- Mettler-Toledo (NYSE:MTD)
- NeoGenomics (NASDAQ:NEO)
- Parexel International (NASDAQ:PRXL)
- PerkinElmer (NYSE:PKI)
- PSivida (PSDV)
- Qiagen (NASDAQ:QGEN)
- Quintiles Transnational Holdings (Q)
- Thermo Fisher Scientific (NYSE:TMO)
The first step I took to narrow down the list of possible options was to look at the earnings over the past five years of these stocks within the industry sector. I removed the following stocks from further review because of their negative or flat (less than 3%) earnings growth over the past five years:
- Accelerate Diagnostics
- Albany Molecular Research
- Bio-Rad Laboratories
- Harvard Bioscience
I then took the list of remaining stocks and checked the revenue growth of each over the past two years. I am removing any stocks that had flat (less than 3%) growth or saw a decline in revenue over the past two years. These stocks include:
- Agilent Technologies
My next move was to examine the trailing PEG ratio of each of the remaining stocks. I removed any stock that had a PEG ratio over 2 to focus more specifically on fairly valued/undervalued stocks. These stocks included:
The next set of data I reviewed was the Fundamental and Value Scores for each of the ten remaining stocks. These scores are calculated by YCharts and I have found them to be very useful when researching investment options. More details on each of the scores can be found here and here.
|Fundamental Score||Value Score|
|Thermo Fisher Scientific||9||10|
To determine the best stocks for 2015, I'm only taking into consideration stocks that have a score of 8 or higher for both its fundamental and value score. Doing this left me with the following remaining stocks:
- Charles River
- Parexel International
- Thermo Fisher Scientific
My next step was to look at the book value of each company and to remove any stock that has seen a decrease in its book value over the past five years. These stocks include:
- Charles River
My next step was to look closer at each stock remaining that passed all previous criteria and determine whether or not there were any reasons to eliminate them as great stock candidates for 2015. In doing so, I reviewed the financials of each company, the most recent quarterly report transcripts, and searched for any news items that warranted concern.
For its last quarter, the company posted a 13% increase in revenue and an increase in earnings per share from $0.53 to $0.87 compared to the same period last year.
For full year 2015, the company has set guidance for 7%-11% revenue growth and 20%-25% earnings per share growth. With improving margins and growth both organically and from acquisitions, I feel that Icon has a very good chance of meeting and/or exceeding this guidance with continued growth moving forward.
With a PE ratio on the low end of the company's recent historical average, I feel that there is room for the stock to see significant price appreciation throughout the remainder of this year.
For its last quarter, the company posted a 5% increase in revenue and a decline in earnings per share from $0.21 to $0.19 compared to the same period last year.
I feel that Luminex is worth taking a look at as a longer term investment, but I am not expecting much in terms of price appreciation this year for the stock. The company's CEO had this to say about 2015:
We expect 2015 to be a transitional year for Luminex as we prepare to launch two transformational products - ARIES and NxTAG.
While I feel that this, along with other positives, will lead to future growth for Luminex, I do feel the stock will remain in neutral (it is down 6% over the past year) this year.
For its last quarter, the company posted flat revenue with an increase in earnings per share from $0.51 to $0.69 compared to the same period last year. Similar to Luminex, Parexel faces somewhat stagnant short-term revenue growth. The company's CEO had this to say regarding the company's near term revenue:
The current mix of business in our backlog has resulted in a continued disproportionate number of projects in the start-up stages. In combination with the adverse impact of recent foreign exchange movements on revenue, we expect these dynamics to have a dampening effect on our revenue projections in the short term, but then lead to rapid expansion as the backlog matures.
These conditions led to the company slightly lower this year's revenue guidance, but because of strong quarterly results and improving margins, the company increased earnings guidance for the year.
Thermo Fisher Scientific
For its last quarter, the company posted a 29% increase in revenue and an increase in earnings per share from $1.43 to $1.99 compared to the same period last year.
The company saw full year earnings growth of 28%, organic revenue growth of 4%, revenue growth from acquisitions of 25%, and a 2.4% increase in operating margin.
With four different business segments that are each performing well, significant recent acquisitions that will lead to continued growth, lower debt, and an improving cash position, I feel that this stock is poised to continue performing well throughout the year. The stock was marked as Bank of America's top pick for the sector last month.
Out of this group of stocks, I feel that Icon, Parexel, and Thermo Fisher Scientific all have the potential to see nice price returns throughout the rest of 2015. While each stock has already seen significant increases in price so far this year,
I believe that there remains room to grow, with strong future earnings expected, and PE ratios that are inline or below each stock's recent historical averages.
For part thirty eight of this series, I will be reviewing the Machinery industry sector. As always, I suggest individual investors perform their own research before making any investment decisions.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.