A Pick and Shovels Business Poised to Explode

There’s never a wrong time to begin investing. In 2021, the markets generated positive buzz when things started to heat up again.

That same optimism has recently transformed into bearishness following the decline in share prices.

Nevertheless, there’s still good news.

Given the lower valuations, investors can now get more bang for their buck.

In the past two years, we’ve experienced so many unprecedented events. Among the most heavily affected by the pandemic is the life sciences sector.

One of the biggest names in this field is Thermo Fisher Scientific (TMO).

With a market capitalization of roughly $200 billion, it’s no longer accurate to describe this as an under-the-radar company. TMO has received minimal fanfare among investors despite its massive size for decades.

A key reason for this is its lowkey steady execution of a well-established or tried-and-tested strategy.

Although it lacks the pizzazz of more exciting companies these days like CRISPR Therapeutics (CRSP), Moderna (MRNA), and BioNTech (BNTX), TMO has rewarded its investors with substantial returns.

Over the last 40 years, TMO has recorded an annual growth rate of 16.5%, hitting a 27,000% return in total by 2021.

In fact, TMO came off a strong 2021.

Its sales grew by 22% from 2020 to report $39.2 billion. While acquisitions played significant roles in the company’s growth, the 17% organic revenue growth of TMO served as its primary growth driver behind its solid numbers in 2021.

Even its COVID-19-related sales, particularly its testing products, contributed to reach $9.2 billion.

Looking at TMO’s business model, it’s evident that the company offers investors great exposure to the entire healthcare field via a single investment only.

That is, TMO is a broad business. It covers practically all life sciences solutions, analytical tools, specialty diagnostics, lab items, and even clinical, biotechnology, and pharmaceutical services.

Spanning the entire industry, such portfolio of products and services allow TMO to confidently go toe-to-toe against industry heavyweights like Agilent Technologies (A), Danaher (DHR), and Illumina (ILMN).

Actually, all of its segments grew last year, with TMO showing off quicker revenue increases than its competitors in the previous five years.

Hence, it is no surprise that TMO expects its numbers to climb in 2022. For this year, the company’s projected revenue is estimated to rise by at least 7% to reach $42 billion.

TMO strategically leveraged more significant acquisitions to build its diverse and deep portfolio today.

In 2011, the company spent $3.5 billion to buy Sweden’s blood-testing firm Phadia and cleverly maneuvered a relatively cheap deal to also grab chromatography company Dionex for only $2.1 billion.

In 2013, TMO bought a fast-growing genetic testing company called Life Tech for $13.6 billion.

At that time, Life Tech was the leader in this field and already possessed the technology to become a front-runner in the personalized medicine space.

In 2016, it shelled out $4.2 billion for electron microscopy company FEI and dropped another $7.2 billion in 2017 to buy pharmaceutical contract manufacturer Patheon.

To date, TMO’s most substantial deal is its $17.4 billion acquisition of contract research business Wilmington’s PPD.

This particular deal created a gateway between the biopharma giant and other drug developers, with TMO boosting its services segment focused on its biotechnology and pharmaceutical clients.

Between 2019 and 2021, the pharmaceutical and biotechnology market has experienced a promising over 20% growth.

This field is expected to grow to an additional $20 billion in 2022, following the growing interest in the industry in this post-pandemic era.

There is another emerging sector within the pharmaceutical and biotechnology market: the precision medicine and gene sequencing field.

Taking into consideration the growing demand for the products and services from this space, this market is estimated to reach roughly $1.6 trillion by 2030. 

This makes TMO’s PPD acquisition timely, as it would allow the company to gain a bigger market share and expand its reach across the globe.

Furthermore, the previous acquisitions would bolster the company’s hold on the current market and ensure its position as a first-mover in potential groundbreaking innovations in the biotech and pharma sector.

Considering its expansion strategies and growth history, TMO doesn’t seem to be stopping anytime soon.

While the environment for mergers and acquisitions did become a bit more restrictive these days, there are still several potential buyout targets that could deliver favorable returns. So, we might hear about another TMO-linked acquisition sometime soon.

Overall, TMO is a healthcare stock offering robust and stable growth and a promising future regardless of economic downturns.

Moreover, its pick-and-shovels play makes it an excellent stock that looks poised to sustain its momentum and is well-positioned for global expansion. Hence, it would be wise to buy the dip.