Two sets of numbers tell you a lot about how Invitae (NYSE:NVTA) and Illumina (NASDAQ:ILMN) compare. First, there's the pair of market caps. Invitae's market cap of under $6 billion is only a fraction of Illumina's market cap of nearly $45 billion. But Invitae's shares have delivered a year-to-date gain of more than 160% versus a loss of 7% for Illumina.

These numbers paint the picture of a small up-and-coming genetics player and a large, established, slower-growth industry leader. But how accurate is that picture? And which of these healthcare stocks is the better pick for long-term investors?

A glowing genome hovering over an outstretched palm.

Image source: Getty Images.

The case for Invitae

Invitae's business mission is to "bring comprehensive genetic information into mainstream medicine to improve healthcare for billions of people." The company offers an array of genetic tests to achieve this mission, including fertility, prenatal, and neonatal testing.

The company's latest quarterly results might make you wonder, though, how much progress Invitae is actually making. For its fiscal second quarter ended June 30, Invitae's revenue fell nearly 14% year over year to $46.2 million. This decline resulted from the COVID-19 pandemic, and Invitae expects its growth to pick up in the second half of 2020.

Invitae's key to success is adding many more genetic tests at the lowest possible cost. CEO Sean George thinks that the company has "created a flywheel effect" with this approach that will allow it to quickly grow the number of individuals that can use genetic information. 

The pending acquisition of ArcherDX is a major step in Invitae's strategy to carve out a big chunk of an addressable market estimated at $45 billion. ArcherDX has developed and marketed more than 325 products. But its biggest opportunity lies with two products currently in development: STRATAFIDE DX, an in vitro diagnostics test that can use gene sequencing on both blood and tissue samples, and Personalized Cancer Monitoring (PCM), which targets cancer recurrence monitoring and therapy selection. 

Invitae isn't profitable yet. It also faces significant competition. However, Invitae thinks that its current cash stockpile will carry it through late 2022 or early 2023, when it anticipates achieving breakeven cash flow. With the addition of ArcherDX, the company expects to be "a runaway leader in genetics across all areas of healthcare" in the future.

The case for Illumina

Illumina ranks as the undisputed market leader in genomic sequencing. The company played a pivotal role in drastically lowering the cost of next-generation sequencing over the last two decades.

As was the case with Invitae, Illumina's fiscal Q2 (ended June 28) results were negatively impacted by the COVID-19 pandemic. The company's Q2 revenue dropped 25% year over year to $838 million. But also like Invitae, Illumina thinks the worst is over and expects a return to growth in the third and fourth quarters.

Over the long run, the coronavirus outbreak could actually expand Illumina's potential market. CEO Francis deSouza noted in the company's Q2 conference call that "the long-term opportunity for sequencing is expanding as the need for more infectious disease research and surveillance capabilities comes into focus." 

Illumina's growth prospects will also increase if its planned acquisition of Grail goes through. Grail was originally launched by Illumina but spun off as a separate entity several years ago. It focuses on the development of liquid biopsies, blood tests that identify DNA fragments broken off from tumors to detect cancer. The Grail acquisition should improve Illumina's position to go after a next-generation sequencing oncology testing market that's expected to reach $75 billion by 2035. 

Perhaps Illumina's biggest challenge is the potential for disruption of its business. The company's attempt to acquire Pacific Biosciences of California to move into long-read sequencing, which addresses some of the limitations of the short-read sequencing used by Illumina, was thwarted. Illumina's buyout of Grail could also cause some customers who are also developing liquid biopsy products to look elsewhere. 

Better buy?

I think the better stock to buy between Invitae and Illumina comes down to what your investing style is.

If you're a more aggressive investor looking for high growth, Invitae offers a bigger opportunity, mainly because it's a smaller company with more room to run. On the other hand, if you're leery of investing in a company that's still losing money and will do so for at least a couple more years, high-profit Illumina will be more to your liking.

The biggest question for Illumina is whether it will be able to deliver enough growth to justify its premium valuation. My hunch is that it will, especially if Grail's Galleri liquid biopsy test is successful.