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Genetic Testing Stocks Rise Again as Volatility Continues

By Maxx Chatsko - Mar 19, 2020 at 2:53PM

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Have these growth stocks bottomed out? That's probably the wrong question to ask.

What happened

Investors continue to assess the economic fallout from the coronavirus pandemic. As the stock market whips around in search of a bottom, genetic testing stocks are being tossed around -- partly due to broader economic concerns, and partly due to concerns that genetic testing services are likely to be considered non-essential and could therefore see a decrease in demand.

It might be temporary, but investors are seeing some relief today. Shares of Invitae (NVTA 9.25%) jumped as much as 30.4%, shares of Myriad Genetics (MYGN 0.27%) leapt nearly 23%, and shares of Exact Sciences (EXAS 6.89%) weren't far behind with a gain of 15%. 

When will investors know if these growth stocks have reached a bottom?

A hand pulling up the last and tallest bar in a chart

Image source: Getty Images.

So what

There are still too many unknowns about the economic impacts from the coronavirus pandemic. The United States and many countries on the European continent have yet to make it through the worst of the epidemiological curve. And when nations do wrest back control, it's possible infections could spread again in a second wave in the next few months. 

Wall Street has already begun to prepare for some of the economic consequences by lowering valuations across a historically expensive stock market. That has ensnared many genetic testing stocks for the simple reason that they've been a tremendous source of growth in recent years, which has earned many industry leaders premium valuations. That means they have more room to fall during market corrections.

However, investors might want to entertain a more direct source of uncertainty. As hospital systems across the United States and Europe prepare for a wave of COVID-19 cases, many have elected to push off non-essential services. That means hip replacements -- and potentially genetic testing services -- will have to wait. 

Considering many genetic testing companies have captured market share by growing testing volumes, investors might need to brace for some relatively disappointing numbers in the first half of 2020. 

For example, Invitae expected to grow sample volumes from 482,000 in 2019 to over 725,000 in 2020. The business hasn't rescinded that guidance yet, but it might be unrealistic now. 

Exact Sciences just today rescinded first-quarter and full-year 2020 guidance due to the coronavirus pandemic. However, it plans to continue operating laboratory testing services for as long as possible. Additionally, samples for its Cologuard colorectal cancer test are collected at home, not a doctor's office, so it may be partially insulated from an industrywide slowdown. 

Meanwhile, Myriad Genetics has been a volatile stock well before the coronavirus pandemic struck. It posted a letter on its website saying it plans to continue processing tests at its laboratories, but the business also said it will let doctors and patients know if that changes given the circumstances. 

Now what

Have these genetic testing stocks bottomed out? Probably not, but that's not the right question to ask. It's virtually impossible to time market troughs or market peaks. The only sensible thing to do is adopt a long-term mindset and know that, eventually, the coronavirus pandemic will pass. When it does, the genetic testing industry will return to growth. In fact, if smaller and weaker private companies in the industry fall on hard times, investors might expect the field's consolidation to accelerate as a consequence of the economic crisis. That could lead to accelerated growth in the next few years.

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Stocks Mentioned

Myriad Genetics, Inc. Stock Quote
Myriad Genetics, Inc.
$18.95 (0.27%) $0.05
Exact Sciences Corporation Stock Quote
Exact Sciences Corporation
$45.15 (6.89%) $2.91
Invitae Stock Quote
$3.07 (9.25%) $0.26

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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