In some cases, falling share prices reflect deep long-term uncertainty. But in other cases, the challenges look temporary.

What’s the stock?

The stock is Danaher (NYSE:DHR). The company is a provider of equipment, software, and services used in drug discovery and development.

The firm has a nice business model. Ongoing consumable sales generate reocurring revenue, while an installed equipment base makes switching difficult.

Drug discovery is also a regulated industry where reliability matters more than price. So quality businesses – like Danaher — can achieve strong margins.

Source: Fiscal.ai

Despite this, both revenues and earnings per share have gone nowhere since 2021. So what’s been going wrong?

Five-year issues

One reason for Danaher’s difficulties is demand for bioprocessing equipment has fallen. It surged during Covid-19, but it’s been weak since then. 

Customers have been looking to use their existing supplies, rather than buying new ones. And that’s been weighing on Danaher.

The other issue is that the firm made some dubious acquisitions. These include paying a high price for an mRNA business at a cyclical peak.

That looks like a mistake. But while it’s been weighing on earnings recently, I think there are clear reasons for positivity ahead. 

A positive outlook

In terms of demand, Danaher’s bioprocessing unit is starting to show some encouraging signs. The latest update reported a 30% increase in orders.

That’s following two consecutive years of declines, so the basis for comparison is pretty low. But it’s definitely a move in the right direction.

In terms of acquisitions, the firm has a very good record. And that’s not an accident – it’s the result of the Danaher Business System.

This is a set of operating principles focused on efficiency and continuous improvement. Management uses these to help subsidiaries develop. 

It’s not infallible, but its success provides a reason for optimism going forward. And the stock is trading at a five-year low.

Valuation

Stocks like Danaher can be tricky to value. Cyclical downturns mean volatile earnings, which makes the price-to-earnings (P/E) ratio unhelpful.

Since the firm retains most of its cash, changes in book value are often a good guide to changes in intrinsic value. And this can be useful.

Source: Fiscal.ai

In the last 10 years, Danaher’s book value has grown by an average of 9.1% a year. That includes the ups and downs of the Covid-19 pandemic.

That’s not bad at all. But on top of this, the stock is currently trading at an unusually low price-to-book (P/B) ratio.

Source: Fiscal.ai

Given this, I think there’s real scope for the multiple to expand if growth picks up. And that’s what I’m expecting to happen. 

An opportunity

Danaher shares over the last five years have been a lesson in the risks of buying at the top of a cycle. But the reverse is true at the bottom.

That’s why I think growth investors should take a look. This is a business with an outstanding record that looks to be getting back on track.

Does that mean it can’t go lower from here? Absolutely not — but from a long-term perspective, I think there’s a lot to like about the stock at today’s prices.

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Enter Danaher (NYSE:DHR). Investors might have lost interest after five years of going nowhere, but this could be about to change. 

A wonderful business

Danaher sells life sciences equipment and consumables. Its main focus is bioprocessing, which is roughly drug discovery and manufacturing.

Drug discovery can be a fast-moving and dynamic industry. So the company has to work hard to stay up with the latest developments. In recent years, this has involved big acquisitions at very high multiples. And this creates a risk that investors can’t afford to ignore.

Danaher’s core business though, is a very good one. It sells consumables that companies need to keep buying, which generates a lot of repeat business. Better yet, these are often specified in drug approval processes. That makes switching virtually impossible and puts the firm in a very strong position.

Numbers

All of this is great. But the company’s recent numbers are underwhelming to say the least and the stock’s gone nowhere since 2021 as a result. In the last five years, sales have grown 10% and free cash flow’s gone nowhere. And that doesn’t justify a price-to-earnings (P/E) ratio of 24.

In the time I’ve been looking at Danaher I’ve been a huge admirer of the business. But I haven’t been able to come to terms with its numbers. This however, might be about to change. The firm expects revenue growth to be between 3% and 6% and earnings per share (EPS) to increase by at least 7%.

If the business can get its growth back on track, then today’s share price might make sense. And there’s a strong reason why this might happen.

Time to shine

The slow growth of the last five years isn’t normal for Danaher by any means. It’s the result of a very specific issue the firm’s been battling with. Demand for bioprocessing equipment and consumables surged during Covid. But when the pandemic ended, customers had a lot of excess inventory.

Instead of buying more, drug companies elected to use up what they had. And that means Danaher’s sales and profits slowed dramatically.

This however, looks like it’s coming to an end. As a result, there’s a good chance growth is set to recover in the near future – as soon as this year. The upper end of the firm’s EPS guidance for 2026 implies a P/E ratio of 22. And that’s towards the low end of where it’s traded in the last 10 years.

High inventory levels have meant the stock’s been dead money for five years. But there are real signs this might be coming to an end. 

An additional boost

Danaher is also set to benefit from one more boost. US research funding has been under pressure recently, but that’s set to change. Congressional appropriators have rejected the administration’s proposed cuts to the National Institutes of Health. That’s another positive sign.

Things are falling into place for Danaher after some tough years. So I think investors should consider buying the stock while it’s down.

The post After 5 long years, is this S&P 500 stock finally ready to bounce back? appeared first on The Twelfth Magpie.

I’m very keen to add them all to my portfolio, but buying at the wrong price is always a bad idea. So a stock market crash – or something of that sort – could be just what I’m looking for.

Experian

There aren’t many FTSE 100 stocks that I think are genuinely expensive right now. But Experian (LSE:EXPN) is one of them – and there are good reasons why this is the case. 

The business is incredibly difficult to disrupt. Its credit scores are drawn from databases that are virtually impossible for new competitors into the industry to replicate. 

On top of this, it sells a product to mortgage lenders that costs a fraction of the risk it helps protect against. That’s an incredibly strong position to be in. 

There have been concerns that Fair Isaac Corp might try to bypass the firm by going direct to lenders. That’s a risk that I think is serious at today’s prices but could be less so at lower ones.

Porvair

Porvair (LSE:PRV) is a stock I used to own, but I sold it when I thought it got too expensive. The firm makes filtration products that are used in laboratories and aircraft.

The latter has been absolutely flying recently – no pun intended. And that means the risk of a cyclical downturn (that’s naturally present in both markets) is unusually high right now. 

What really stands out, though, is that both markets are heavily regulated. This creates a significant barrier to entry for competitors and helps Porvair generate strong recurring sales.

With a market value of £373m, the stock is one a many investors might not have on their radars. But I think they should consider taking a closer look before the next market crash. 

Danaher

Danaher (NYSE:DHR) is an odd S&P 500 stock. Despite being firmly out-of-favour with the market at the moment, it still trades at some relatively high multiples. 

The firm is a US supplier of life sciences equipment. And it’s built a strong position by acquiring other businesses and helping make them more efficient.

Despite the industry being under pressure recently, Danaher shares have only faltered slightly. That’s actually quite impressive for a stock trading at a price-to-earnings (P/E) ratio of 46.

Regulation is a risk in this industry and this is playing out at the moment. So while I want to own the stock very much, I find it hard to justify paying today’s prices. 

Crash opportunities

As I see it, investing is about balancing two things. One is being on the lookout for buying opportunities and the other is being disciplined about valuations. 

I think almost every stock comes to trade at a bargain price at some time or other. And a stock market crash is the kind of thing that can make this happen. 

With that in mind, I think it’s a good move to have a set of ideas about which stocks to buy ready for when prices fall. And Experian, Porvair, and Danaher are three from my list.

The post 3 stocks I’m looking to buy in the next crash appeared first on The Twelfth Magpie.

Source: Hedge Fund Tips

Not all stocks are the same, though, and large parts of the market don’t look expensive at the moment. But the key for investors is knowing where to look.

Crowded trades

The major investment theme of the year so far has been artificial intelligence (AI). And the most obvious beneficiaries of this have been the collection of stocks known as the ‘Magnificent Seven.’

During the second quarter of this year, the Magnificent Seven collectively grew profits at 26.6%. By contrast, the rest of the S&P 500 managed earnings growth of 7.4%. 

Hedge Fund Tips

That kind of growth – especially relative to the wider market – has naturally been catching the attention of investors. But fund managers are starting to think the trade is getting crowded. 

When investors start doing the same thing, things can get risky. It can lead to sudden reversions in the short term, but there are also long-term issues to consider.

Warren Buffett

When it comes to looking for overlooked opportunities, Warren Buffett is one of the best in the business. And the Berkshire Hathaway CEO has some advice for investors looking to do the same: “The future is never clear – you pay a very high price in the stock market for a cheery consensus. Uncertainty, actually, is the friend of the buyer of long-term values.”

In other words, investors looking for long-term returns should be wary of crowded trades. Instead, they should look for opportunities in places where others are less optimistic.

There are a few of these that spring to mind. But in terms of the S&P 500, there’s one in particular that I think is worth paying attention to at the moment.

Pharmaceuticals

Danaher (NYSE:DHR) shares are down 30% in the last 12 months. And the US administration’s shift in healthcare policy away from medication is a risk that investors should take seriously.

Sales have been falling as a result, but the firm is starting to show signs of recovery. Earnings per share have come in ahead of expectations in both the first two quarters of this year.

Despite a challenging environment, Danaher still has a strong competitive position, which is based on operational efficiency and smart acquisitions. And this is a promising long-term sign.

Source: TradingView

Right now, though, the stock is trading at an unusually cheap level on a price-to-book (P/B) basis. As a result, I think it’s well worth considering as a potential buying opportunity. 

Finding opportunities

I think there are always buying opportunities to be found somewhere in the stock market. But as Warren Buffett points out, these are usually not in the places that everyone else is looking.

The rise of AI has resulted in genuine growth for the companies known as the Magnificent Seven. That trade, however, is starting to look crowded and that’s something to be wary of right now.

On the other side, things look less positive in the healthcare space. But with Danaher starting to show some positive signs after a difficult few years, I think this is where investors should look.

The post Where are the buying opportunities in today’s stock market? appeared first on The Twelfth Magpie.

Valuations might be relatively high, but that doesn’t mean a crash is on the way. So I’m still looking for buying opportunities even as stocks keep moving higher.

Valuation

There’s no question that valuations are high at the moment. Both the FTSE 100 (17) and the S&P 500 (27) trade at unusually high price-to-earnings (P/E) multiples. 

By itself however, this isn’t a sign that the stock market’s going to crash immediately, or even soon. There’s no rule saying stocks can’t trade at elevated multiples – they’re doing it right now.

It does mean investors have to be a little careful about what to buy. Share prices are reflecting some optimistic assumptions about future growth and these need to materialise.

At times like this, I think it’s worth taking a more detailed look at individual stocks. While shares collectively have been doing well, some companies still trade at attractive-looking valuations.

The S&P 500

While the S&P 500’s up 27% from its April lows, the rally’s mostly been led by some of its biggest names, especially in the tech sector. These have pulled the index as a whole higher.

One way of illustrating this is by comparing the market-cap-weighted version of the index with an equal-weighted version. The ratio between the two has expanded significantly since April.

Source: Longtermtrends

As a result, I think the place to look right now in terms of US stocks is among the smaller companies. These are the shares that seem to have the most to gain if the stock market rally continues.

Underperforming sectors recently have included energy and consumer staples. But it’s a stock in the healthcare space that has been catching my attention recently.

Growth stocks

Danaher‘s (NYSE:DHR) a stock I’ve got my eye on. Demand for bioprocessing supplies have faltered since the pandemic and sales have also faltered, leading the stock to decline 27% in the last year.

The current US administration is openly sceptical about the pharmaceutical industry and this is an ongoing risk for the company. But there are clear signs a recovery might be on the horizon.

Danaher’s guiding for revenues to start growing again in 2025. And while this is modest at around 3%, the firm’s looking for margin expansion to push earnings up at a higher rate.

The falling share price means the stock currently trades at unusually low multiples of sales and earnings. And this means I think there’s room for these to expand, giving it an extra boost.

Stock market outlook

I think if the stock market’s going to continue its recent run, it’s going to be driven by some of the shares that have been underperforming lately. And Danaher’s one example.

The company has been facing some temporary difficulties, but these might be coming to an end and its long-term prospects have put it on my buying radar.

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Shares in Danaher (NYSE:DHR) have fallen 29% in the last year. But I think the underlying business is very attractive and a discounted share price has put it firmly on my radar at the moment.

Durable growth

Danaher is a leader in supplying products and services to the life sciences, diagnostics, and biotechnology industries. These are growing and highly regulated industries. 

This gives the firm a lot of scope to increase prices to offset inflation without substantially weighing on demand. On top of this, the company has a strong record of growing through acquisitions.

Buying other businesses is always risky, but Danaher does have some unusual advantages when it comes to acquisitions. A key part of this is the firm’s culture, of efficiency and ongoing improvement.

The ability to improve its subsidiaries creates a margin of safety for the firm and it’s why the stock is up over 200% over the last decade. But things haven’t been going quite so well lately. 

Challenges

The Covid-19 pandemic caused a surge in demand for Danaher’s products and sales jumped as a result. Since then, however, the situation has reversed as customers use up their excess inventories.

As a result, the firm’s financial performance has faltered lately. The most recent earnings update reported a decline in revenues, and management stated its expectation this would continue. 

The risk for investors is that – even after the latest decline – the stock is priced for growth. And if inventory levels stay higher for longer, this growth might take a while to materialise. 

I think, however, that the firm’s key competitive advantages are still firmly intact. So while the market is focusing on the next six months, I’m looking further ahead. 

Valuation

On an adjusted basis, the stock trades at a price-to-earnings (P/E) ratio of around 25. That looks quite high, but I don’t think this is necessarily the best metric to use for valuing Danaher shares.

Earnings have gone from unusually high to unusually low as a result of the volatile demand over the last few years. And this makes the P/E ratio a less meaningful way of measuring value.

By contrast, Danaher’s book value (the difference between its assets and its liabilities) has been relatively steady. On a price-to-book (P/B) basis, however, it’s trading at its lowest level since 2019.

This indicates to me that the stock is unusually cheap and that’s why it’s on my list of shares to consider buying in June. The latest decline puts it in territory that looks unusually attractive to me.

Long-term investing

Danaher has gone from a small investment vehicle to an acquirer of industrial tools companies, to a life sciences conglomerate. And at each stage, its focus has been on the long term. 

I think that approach aligns well with investors who have a long-term outlook and it’s a key part of what attracts me to the business. I’m hoping to find similar success with the stock in my portfolio.

The post Down 29% in a year, meet the S&P 500 stock I’m considering buying June appeared first on The Twelfth Magpie.

I’m a big believer in the idea that valuation is important – even when it comes to growth stocks. And these are shares that are trading at some of their lowest multiples for years.

Danaher

Danaher (NYSE:DHR) is a great example. The company is a collection of smaller businesses that supply tools and technologies in the life sciences and diagnostics industries.

The firm’s growth strategy involves acquiring other organisations that operate in markets close to its own. From there it looks to integrate them into its existing structure. 

This results in cost savings, operational efficiencies, and improved performance – which translates into higher profits. And this has been an extremely effective approach. 

Over the last 10 years, revenues have gone from $14.4bn to $23.9bn. While there has been some volatility during and after the Covid-19 pandemic, overall growth has been strong.

Acquiring other businesses is a risky approach. Danaher has recently paid a high multiple to acquire a company called ABCAM – and this increases the chances of overpaying. 

Eliminating this risk is impossible, but investors can mitigate it by avoiding overpaying for the stock. And at a price-to-book (P/B) ratio of just below 3 — its lowest level since 2019 — I think now is a good time to be looking.

Judges Scientific

Judges Scientific (LSE:JDG) has a lot in common with Danaher. It’s another firm that looks to grow by acquisitions and focuses on scientific equipment, albeit with a broader range of uses.

The stock has fallen 23% over the last 12 months, as sales have slowed. But I think this is temporary and puts the stock in very interesting territory. 

Unlike Danaher, Judges Scientific doesn’t typically look to involve itself in the businesses it acquires. It mostly allows them to continue to operate as they were. 

This increases the risk of overpaying, since cost savings aren’t there to be made. But there is a positive element to the company’s approach as well. 

Judges Scientific allows managers to keep running their operations. And this can be valuable for entrepreneurs who want to be able to continue to direct the businesses they have built.

The stock is trading at a P/B multiple of 6, which is high compared to other shares, but low in the context of where the stock has been in the last five years. As a result, I think it’s well worth taking a look at in March. 

Price-to-book!?

I’ve used price-to-book instead of price-to-earnings (P/E) as a valuation basis. This is because one-off and intangible costs make Danaher and Judges Scientific tricky in terms of earnings.

Both firms report adjusted metrics to account for this and I don’t object to using those in a valuation. On this basis, Danaher trades at a P/E multiple of 27 and Judges Scientific is at 29.

Book value, however, offers a relatively stable guide. And this is why the fact both stocks are trading at unusually low P/B ratios makes this a very good time to consider buying them.

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