The market finished slightly positive yesterday as President Trump indicated he wants Congress to increase stimulus checks to $2,000. This is against a backdrop of soaring cases of the coronavirus and a possible new strain in the UK. 

As we head into the holiday weekend, the market looks like it will be pulled in both directions as we await further word from the White House and Congress on the stimulus legislation. In the meantime, I expect a further increase in COVID-19 cases due to large gatherings for Christmas celebrations and traveling. This is why I am recommending three COVID-19 testing stocks that should benefit from a substantial uptick in cases, including Hologic, Inc. (HOLX), PerkinElmer, Inc. (PKI), and Laboratory Corporation of America Holdings (LH).

But first, let’s take a look at the markets over the past few days; then, I will provide more insight into the three stocks I mentioned.

Market Commentary

Yesterday, the Dow Jones Industrial Average finished up 0.38%, while the S&P 500 was essentially flat with a 0.07% gain. The Nasdaq Composite Index fell 0.29% to 12,771.11. While I thought the market might react negatively to President Trump’s rejection of the bipartisan stimulus bill, the optimism over larger stimulus checks prevailed.

Concerns over a mutation in the coronavirus in the UK led to a down day for stocks on Tuesday, but this was countered by positive news that the current vaccines could protect us against it. The CEO of BioNtech (BNTX) expressed that he was confident its joint vaccine with Pfizer (PFE) would be effective against the new strain. In addition, Moderna’s (MRNA) vaccine rolled out this week after the PFE and BNTX version was introduced last week.

Market Outlook

It appears that the main drivers of the market will continue to be the stimulus bill and rising concerns over COVID-19. I still believe a stimulus bill will get signed by the President sooner rather than later. When it comes to COVID-19, it seems any negative news leads to a small drop in the market, only to recover after.

Even still, soaring cases are a concern. Yesterday, the U.S. reported its second-highest number of coronavirus deaths in one day; 3,401. In nine states, there are more people hospitalized with COVID-19 than at any other point in this pandemic. This was most likely driven by Thanksgiving travel and gatherings. Which begs the question, what can we expect after Christmas and New Years?

I believe we will see even more infections, hospitalizations, and deaths than we have from Thanksgiving. I think testing will ramp up into the new year, especially once President-elect Biden assumes the Presidency. This could lead to enormous gains for testing companies that I am highlighting below.

Hologic, Inc. (HOLX)

While HOLX was previously known for creating products for women’s healthcare needs, its acquisition of Gen-Probe put greater emphasis on commercial diagnostics. Its recent growth in Diagnostic revenues is being driven by strong demand for the company’s COVID-19 related products. The company has generated robust sales from strong customer adoption of HOLX’s two SARS-CoV-2 tests.

In May, the company received the FDA’s Emergency Use Authorization (EUA) for its Aptima SARS-CoV-2 assay to test for COVID-19. In October, the FDA amended this authorization for the use of testing asymptomatic individuals with or without symptoms. In the previous month, the company received the FDA’s EUA for its Panther Fusion SARS-CoV-2 assay to test asymptomatic individuals.

The company should see increased revenue as testing amps up. The stock is rated a “Strong Buy” in our POWR Ratings system. It holds a grade of “A” across the board in every component, including Trade Grade, Buy & Hold Grade, Peer Grade, and Industry Rank. It is also ranked #9 in the Medical – Devices & Equipment industry.

PerkinElmer, Inc. (PKI)

PKI provides instruments, consumables, and services to the pharmaceutical, biomedical, chemical, environmental, and general industrial markets. Like HOLX, PKI’s Diagnostics segment was previously known for its reproductive screening capabilities, but its COVID-related products drive the company’s revenue right now.

In July, PKI launched a dry blood spot-based test for SARS-CoV-2 IgG using its GSP/DELFIA platform. The platform is able to process up to 5,000 samples per day. In October, when the FDA released a list that ranked sensitivities of diagnostic coronavirus tests, PKI’s new Coronavirus Nucleic Acid Detection Kit was the most sensitive test. The company’s product pipeline currently includes over 15 COVID-related products.

The company is sure to benefit from increased testing in the United States. The stock is rated a “Strong Buy” in our POWR Ratings system. It holds a grade of “A” for Trade Grade, Buy & Hold Grade, Industry Rank, and a “B” for Peer Grade. PKI is also ranked #13 in the Medical – Devices & Equipment industry.

Laboratory Corporation of America Holdings (LH)

LH is one of the nation’s two largest independent clinical laboratories, with roughly 20% of the independent lab market. Its Diagnostics segment makes up over 60% of revenue. LH was the first commercial lab to launch COVID-19 molecular testing on March 5. The company has since then rapidly expanded its capacity and accessibility for testing.

Through the third quarter, LH has performed 22 million COVID tests. This demand was evident in its third-quarter results as revenue came in better than analyst estimates and was up 33% year over year. The company stands to benefit from continued testing until a large percentage of the population is vaccinated.

The stock is rated a “Buy” in our POWR Ratings system. It holds a grade of “A” in Trade Grade and a “B: for Buy & Hold Grade, Peer Grade, and Industry Rank. It is also the #23 ranked stock in the Medical – Devices & Equipment industry.

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HOLX shares were unchanged in premarket trading Thursday. Year-to-date, HOLX has gained 43.77%, versus a 16.53% rise in the benchmark S&P 500 index during the same period.

About the Author: David Cohne

David Cohne has 20 years of experience as an investment analyst and writer. Prior to StockNews, David spent eleven years as a consultant providing outsourced investment research and content to financial services companies, hedge funds, and online publications. David enjoys researching and writing about stocks and the markets. He takes a fundamental quantitative approach in evaluating stocks for readers. More...

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