Michael Waterhouse: From a growth and economic moat perspective, we think the life science and diagnostic tools manufacturers have a lot to offer investors. Depending on their niche market exposure, we think most companies can sustain mid-single to high-single-digit growth, with the highest growth for firms having material sales from R&D and bioprocessing spending among biopharma customers as well as firms with molecular and genomic testing products.
We also think many firms in this space benefit from economic moats, including wide-moat Waters and Agilent, thanks to intangibles and switching costs around their large installed bases of analytical instruments in liquid and gas chromatography.
We note however that most of this optimism in this industry is already reflected in these stocks, with many looking overvalued to us and trading at price to earnings multiples in the high 20s. On a relative basis, we see more value for names like Danaher, Becton Dickinson, Waters, and Agilent, and we think investors should consider keeping these names on the radar.