Why Illumina Could Be a Health Tech Powerhouse for Your Portfolio

Over the course of The Motley Fool's 26-year history, one of its guiding principles has been to look for the positive side of the story. The best stocks, services, and stories have produced some of the best returns for investors. Those innovators don't always pay off fast, but that's OK -- when you buy and hold for the long term, you can afford to be patient. And speaking of patience -- or rather, of patients -- it's time for Rule Breaker Investing host David Gardner to pick another of his five-stock samplers, and this time, his theme is medical miracles. Each company he's recommending has big potential to cure a condition that has thus far been incurable or to create new possibilities where none existed before.

By definition, that means that his picks this time may carry more risk than some of his prior recommendations. For every biotech breakthrough that makes it to market, there are many promising candidates that don't pan out. Still, three years from now, the Motley Fool co-founder expects that on the whole, this basket of stocks (all of which are all already active recommendations in his portfolio) will be beating the S&P 500 -- and saving lives, too.

Recommendation No. 4: the gene-sequencing leader Illumina (ILMN -1.28%), which has cut the cost of mapping a person's genome by more than a thousandfold over the years -- from $1 million to under $1,000. Along the way, it has grown into a $46 billion mid-cap stock, but given the ambitions that the pharmaceutical industry has for genomic medicine, there's reason to believe that Illumina is just getting started, and Gardner will happily explain why he thinks so.

A full transcript follows the video.

This video was recorded on April 3, 2019.

David Gardner: Stock No. 4. We started with A, Amgen. We moved to B, bluebird bio. Then E, Editas Medicine. Let's go to the letter I for company No. 4: Illumina, ILMN. Illumina is basically a worldwide leader in the business of DNA sequences and DNA sequencing, which I will explain in a sec. But first, let me mention, what is the size of the market cap of this company today? Well, the answer is $46 billion as we tape. We're talking about a very substantial, mid- to verging on large-cap company, and, as I say, a leader at what it does.

I first picked the stock in July of 2008, more than 10 years ago. Back then, it was at $43. Today it's at $316. That's pretty great! It's a seven-bagger, up 630%. Now, you might wonder, well, how has the stock market done? That was an interesting month, July 2008. The market was getting mangled, and it was about to get worse. Well, the stock market has been really great over the last 11 years or so. It's up 180%. But when you own a stock that's up 630%, well, you're hundreds of points of alpha ahead of where most academics, it seems to me, think that you should be as an investor because too much of the world continues to believe -- here's a dark cloud I can see through -- too much of the world continues to believe that you really couldn't beat the market averages in any kind of dependable way by picking individual stocks. Illumina, yet another case against the status quo. Those of you who've been with me in Illumina since 2008, good job! We are crushing the market!

I'm the first to say it's not about looking back. If this is the feeling you're getting, you're thinking, "I missed this stock. He picked it at $43. It's $316 today." Pause for a sec and say this aloud with me. We're about to say, "It doesn't matter what already happened. David likes it today." Ready, set, go! It doesn't matter what already happened. David likes it today. I hope you do, too.

Why should you like Illumina? Well, two reasons I can see. First of all, they are a clear leader in DNA sequencing. Now, even a humanities person like me remembers that there are those four bases, A, G, C, and T. Adenine, guanine, cytosine, and thymine. Those four letters make up the building block that is you. They're strung together in sequences, seemingly random orders. But as it turns out, those orders are highly consequential to everything about you -- how you look, how long you're going to live, what are your strengths and weaknesses, the list goes on. Guess who is powering services like 23andMe, which I know some of you have tried, where you have your own DNA sequenced? The answer is, it's really Illumina's machines that most frequently, going back to the days of the Human Genome Project, their sequencers are used to sequence your DNA.

I myself have tried 23andMe. I recommend it to you if you haven't already. I've even done it twice because there was an early stage of 23andMe that I paid maybe $500 for. Then, a few years later, they said, "We've now improved it. Would you like to do it again?" And I said, "Yes." I think I paid less. Which by the way, is one of the keys to this business we'll talk about in a little while. It's getting cheaper and cheaper to sequence DNA. I love being invested, not here in a company creating biotechnology or taking risks to develop cures. This is one of those picks-and-shovels companies. They are sequencing all the DNA that companies like Bluebird Bio and Editas are using to try to figure out how to help you and me. Illumina is safeguard against decisions made by the FDA. They are just powering the world by sequencing all of your and my DNA. And yes, pretty sure in the next few decades, literally all of us will have had our DNA sequenced. Every last one of us on earth, and probably multiple times. So yes, Illumina is the company that is powering this revolution.

A second thing I like about Illumina. How about its sales growth, just in the last three years, from $2.2 billion to $3.3 billion? Yep. Up 50% in just three years. The company has accelerating sales growth as this gets more popular.

What's something to watch about Illumina? Well, it's tied into that point. Here's the thing to watch for Illumina. The CEO of the company has said this. "I believe we're going to get down to a $100 genome." The cost of sequencing yours or mine, the goal is within the coming years, just $100. You can see, like other things, Moore's Law powering a lot of this. Constant gains are being made in terms of the power and the speed and the technology of all the machines around us. These machines are no exception. The goal is to just get it cheaper and cheaper. As that data just spreads out, you can see why we at The Fool love cloud data businesses.

Amazon Web Services probably stores a ton of genetic sequencing information. There is a revolution happening, of course, in genomics. The future was already here a long time ago. It's not been evenly distributed. But by the end, it's going to be very evenly distributed. All of us will have had our DNA sequenced multiple times, and that'll help, well, all the rest of us.