The American Rescue Plan stimulus package includes $10 billion to be distributed to support COVID-19 testing in schools, plus another $2.5 billion to help state and local public health agencies increase testing in underserved and high-risk communities. And that's not all: Another $4 billion will be routed to the Indian Health Service's Tribal and Urban Indian health programs to fight COVID-19 in Native American communities, and some of that, too, will go toward increasing testing.
1. Illumina, the slow and steady giant
Illumina is no doubt the blue-chip player in the world of genomic sequencing. Its technology was used at the Shanghai Public Health Center to sequence the first published COVID-19 genome before it was even known as SARS-CoV-2. The company's sequencing technology continues to be utilized worldwide to identify new COVID strains that could pose a future threat to public health.
As the world's leading gene-sequencing company during the pandemic, Illumina has been busy. In fact, in Q4, the company's market-leading sequencer, the NovaSeq, had its second-best sales quarter in its five years on the market. Though its full-year 2020 revenue fell 9%, the company's business accelerated in the second half, growing by 17% from the first half. Management expects that trend to continue: Illumina recently raised its 2021 guidance -- it's now expecting revenue growth in the 25% to 28% range.
Coronavirus-related tailwinds aside, Illumina's role as the world's genomics and sequencing leader means that it's well-positioned to benefit from growth in a wide swath of scientific research areas. The stimulus package will only accelerate the already exciting growth of this $60 billion market cap business.
2. There are billions of reasons to love Fulgent, literally
Washington's decision to allocate billions of dollars in new funding to increase coronavirus testing is music to the ears of Fulgent Genetics, which provides large-scale COVID-19 testing services in venues such as schools, drive-through clinics, and private businesses.
Fulgent has demonstrated that it can deliver, having performed 3.2 million billable tests in the fourth quarter alone (most of them for COVID). Further, the company was able to deliver the results for 95% of those tests within 24 hours of the samples' arriving at their labs. The federal government has taken notice. Fulgent Genetics was awarded a contract from the Centers for Disease Control and Prevention (CDC) to study COVID-19 variants. With a full suite of services deployable for large-scale testing efforts, Fulgent should remain a vital cog in the nation's COVID-19 tracking and tracing machine.
Fulgent is well-positioned to be the beneficiary of local governments' enhanced spending on high-volume testing. It's also participating in the hunt for COVID-19 variants that may be more dangerous. The American Rescue Plan includes a separate $1.7 billion investment to track emerging COVID-19 strains -- a whole separate revenue stream that the company is in a perfect position to capitalize on. In fact, Fulgent has already inked an agreement to provide the CDC with genomic sequences of COVID-19 samples on an ongoing basis.
With more than $18 billion in fresh federal funds being routed into markets it can serve, Fulgent has plenty of room to grow its sales. Management has already stated that it expects $800 million in revenue in 2021 -- not bad for a company with a market cap below $2.5 billion.
3. 10x Genomics is the dark horse
How does COVID-19 affect the lungs? Why does it cause neurological complications? What causes one person to have an overwhelming and dangerous immune response to the coronavirus, while another barely experiences any symptoms? These are all questions that 10x Genomics has helped researchers answer. 10x Genomics helps analyze how a single cell interacts with its environment -- a technology that has never before been so readily available -- providing new insights into developing treatments for disease.
Single-cell analysis is a hot research landscape -- and 10x Genomics dominates it. 10x Genomics' customers published more than 1,500 peer-reviewed papers in 2020, more than doubling the number of total publications featuring single-cell analysis. (Currently, there are only about 2,200 published papers in which the researchers utilized single-cell analysis.) Right now, 98 of the world's top 100 research institutions and 19 of the top 20 pharmaceutical companies utilize 10x Genomics' tools in this up-and-coming research field.
How does this tie into the American Rescue Plan? Well, Washington has allocated $300 million to establish six Centers of Excellence in Genomic Epidemiology to promote cutting-edge research. The legislation specifically noted that these centers are not being built just to support the nation's COVID-19 response, but also to combat future emerging threats to public health. And they'll likely want to bring 10x Genomics' cutting-edge tools to that fight.
Add in the fact that President Biden has asked Congress for a 20% increase in the National Science Foundation budget and 21.4% increase for the National Institutes of Health budget, and 10x Genomics, as the leader in a growing and important sector of the healthcare research space, has a lot of runway ahead.
Which one could rescue your portfolio?
I believe all of these companies have significant tailwinds that could propel them to faster growth than the broader market over the coming years. But of the three, with a current P/E ratio below ten, and management expecting 90% revenue growth for full year 2021, Fulgent Genetics looks like a great deal. Fulgent's non-COVID-related sales rose 92% to $70 million in 2020, so even if the COVID testing business completely dries up, the company has other offerings that could pick up some of the slack. For these reasons, I think Fulgent represents the best opportunity for biotech investors right now.