For good or bad, what Wall Street analysts think about a stock makes a big difference. One downgrade from an analyst can cause a stock to sink. On the other hand, an analyst's upgrade or price target increase usually provides a nice positive catalyst for a stock.
But -- you might need to sit down for this -- Wall Street analysts aren't always right. That's shocking, I know. And sometimes they can be flat-out wrong about a stock. With that in mind, here are two stocks that Wall Street hates but you'll probably like.
Fulgent Genetics: More than just COVID-19 testing
The Wall Street consensus price target for Fulgent Genetics (FLGT 5.74%) reflects a 41% discount to the current price for the healthcare stock. I think that analysts are being way too pessimistic about Fulgent's prospects.
As its name indicates, Fulgent Genetics focuses on genetic testing. Its stock quadrupled in value in 2020 thanks to surging demand for Fulgent's COVID-19 tests. Wall Street analysts apparently think that that demand will sharply decline this year. That might seem reasonable with the increasing availability of COVID-19 vaccines.
However, new coronavirus variants (especially the B.1.351 variant first identified in South Africa) appears to be more resistant to vaccines. Don't be surprised if COVID-19 testing volumes remain high for a longer period than analysts expect.
I also think that Wall Street is missing a more important long-term story for Fulgent. The company's opportunities go way beyond COVID-19 testing.
Fulgent estimates that its addressable market for genetic testing will top $10 billion by the end of 2022. Even with soaring sales last year, the company will probably report revenue of around $300 million. Fulgent's technology platform gives it the nimbleness and cost advantages that should enable it to capture a much greater chunk of the potential market over the next few years.
Can Fulgent Genetics double your money in 2021? I wouldn't go that far at this point, especially since the stock has basically doubled already year to date. However, my view is that it's more likely that Fulgent will continue to deliver solid returns this year than plunge more than 40% as many Wall Street analysts expect.
Illumina: The 800-pound gorilla in genomics
Wall Street is also pretty pessimistic about Fulgent's gene-sequencing technology partner and 800-pound gorilla in the genomics market, Illumina (ILMN 4.06%). The average analyst price target is 24% below Illumina's current share price.
Unlike Fulgent, Illumina didn't deliver jaw-dropping returns last year. Its stock rose less than 12% while the S&P 500 index jumped 16%. Illumina is off to a better start this year with a double-digit gain. However, I don't think the stock is poised to sink as analysts seem to anticipate it will. Actually, my view is that 2021 will be a pretty good year for Illumina.
The company already announced guidance projecting revenue growth of up to 20% in 2021. Sure, increased COVID-19 testing one tailwind fueling this growth. But Illumina also has other growth drivers, including a major ramp-up in population genomics initiatives this year and its recent launch of Illumina Connected Analytics, a cloud-based platform supporting bioinformatics.
Illumina's NovaSeq system should also continue to enjoy solid momentum. It's already the most successful sequencing system in the company's history. The installed base for Novaseq currently tops 1,100. Illumina still has over 320 customers using its older HiSeq system that haven't converted to NovaSeq yet.
While Illumina's near-term prospects look good, it's the company's long-term potential that is especially exciting. We've only begun to see what gene sequencing can achieve in helping detect cancer at early stages and develop therapies for genetic diseases.
Illumina still expects to lower the cost of sequencing a human genome to $100 from around $600 today. If it achieves that goal (and I think it will), there could be an explosion in the use of genomic sequencing. And this 800-pound gorilla will probably grow much larger.