It’s been a strong day for growth stocks, with big rises for lots of technology companies. Yesterday’s weak US manufacturing numbers mean that the Fed may not have to push up rates as high as previously thought. Low interest rates are good news for growth stocks, and that’s driving markets.
Read on as we look at two cutting-edge health stocks that have jumped today along with an electric vehicle business (not Tesla), and a company that has exciting semiconductor technology, while it's not such good news for Netflix.
Illumina (ILMN), the DNA sequencing company, was one of yesterday’s biggest fallers, but it’s performed much better today. In fact, it’s led today’s growth stock rally with a 12% rise to $204.44.
A big plus point for Illumina is that it generates lots of recurring revenue. The business model works like this: Illumina initially sells some DNA sequencing equipment to a customer and then sells higher margin consumables and services to the customer for years to come.
Be careful though – Illumina is trading on a high earnings multiple of over 50, so it’s not cheap.
Dexcom (DXCM) is another big tech stock riser today, up 8.5% to $91.12.
Dexcom has developed clever glucose monitoring technology that makes life easier for diabetics. Many diabetics monitor their blood glucose levels by doing a ‘finger prick test’ several times a day. But with Dexcom’s G6 system, you don’t need to prick your finger at all – instead you attach a sensor to your skin that you don’t need to change for days. The G6 system gives diabetics constant data on their blood glucose levels which should help diabetics manage their food intake more effectively. That, in turn, should mean that fewer diabetics end up in hospital with complications.
Dexcom has a market cap of $35 billion and generated $2.5 billion in revenue last year. Analysts are forecasting strong growth to come and there are plenty of potential customers out there. About 420 million people have diabetes worldwide and that number is expected to hit 700 million by 2045.
Lucid (LCID) is a loss-making electric vehicle start-up, so you’d expect it to do especially well in a growth stock rally, and the shares are up 11% today to $15.65. Sentiment has also been boosted by good news from rival EV player Rivian, which announced decent production numbers today.
That said, Lucid’s production numbers haven’t looked great this year. In January, the company said it would produce 22,000 vehicles this year but that forecast was cut to just 7,000 vehicles in August. All thanks to those widely quoted logistical problems. Lucid is a long way from profitability so it’s not hard to argue that the current $27 billion market cap is too high.
ASML (ASML) makes equipment which is used by semiconductor manufacturers. Its latest technology is called extreme ultraviolet lithography (EUV) equipment, which can be used to produce the most advanced computer chips. The business is highly successful and profits have grown by 30% a year since 2016. Sales growth may slow in the short term as several manufacturers have made big investments in equipment recently, but the long-term picture looks good. The share price is up 8% at $466.01.
On a day when most growth stocks are up a lot, Netflix (NFLX) has disappointed investors once again with a tiny 0.2% rise to $239.56.. Today’s poor performance follows a 60% fall in the share price this year.
Netflix’s big problem is that growth in the number of users has stalled. At the end of 2021, Netflix had 221.8 million subscribers. Six months later, that number had fallen to 220.7 million. Crucially Disney now has more streaming subscribers than Netflix, and there are several other competing streaming services out there. Life isn’t going to get any easier for Netflix and there’s a strong case for saying that the company isn’t a growth stock anymore. No wonder, Netflix hasn’t joined in today’s growth stock rally.
Teleflex (TFX) is a specialty medical device company and it’s one of the few stock market fallers today. The company completed a takeover last week of a company called Standard Bariatrics, which has developed innovative stapling technology for bariatric surgery – also known as weight loss surgery. Sadly, there’s probably lots of growth potential in this area.
There’s no firm explanation for today’s share price fall although we wonder if some investors might be having second thoughts about the Bariatrics acquisition. The shares are down 1% at $206.48.
Property trusts are often the opposite of growth stocks. They usually produce reliable profits and dividends, but there’s no big technology or competitive advantage to drive strong growth. Essex Property Trust fits the bill exactly. It’s a REIT (Real Estate Investment Trust) which owns and operates apartment communities on the West Coast. The business has performed solidly but there’s been no major growth over the last decade. That lack of growth explains today’s flat share price performance, no change at $245.95. News that the CEO, Michael Schall, was retiring may also have held down the price.
Shares in Vertex Pharmaceuticals are flat today, sitting unchanged at $296.00 There’s no news to explain today’s relatively poor performance but existing investors probably aren’t too worried. The shares are up 66% this year, and the company has lots to shout about. It has developed four drugs to treat cystic fibrosis (CF) which are on the market and there are three more CF treatments in the pipeline. Vertex is way ahead of the competition in this area, and it’s also developing some promising drugs for other illnesses as well. Vertex is expected to make $3.6 billion in profit this year, not bad for a company with a $76 billion market cap.