Danaher (NYSE:DHR) has been one of the market’s all-time great stocks. Cumulative returns exceed 160,000%. Put another way, $10,000 invested in the initial public offering of Danaher stock would be worth over $16 million right now.
Stock performance aside, Danaher remains one of the world’s best companies. The Danaher Business System has driven decades of outperformance, and has been copied by businesses worldwide.
Indeed, it’s no coincidence that General Electric (NYSE:GE) lured former Danaher CEO Larry Culp out of retirement. GE saw no one better to drive its turnaround.
Yet Danaher stock has sold off amid the recent market panic. DHR has declined 18% from late January highs. Simply put, that’s a mistake by the market.
Danaher has declined amid past selloffs. Every time, the pullback represented a buying opportunity. This pullback will be no different.
And this time around, investors are ignoring Danaher’s potential contribution to the fight against the novel coronavirus. There are a good number of quality names that have declined too far, and Danaher stock is high on the list.
Why Danaher Isn’t Going Anywhere
The decline in Danaher stock is somewhat surprising given that the company shouldn’t have much, if any, exposure to the economic effects of this pandemic. This is more a healthcare company than an industrial play.
That will be even more true going forward. Danaher just acquired GE’s biopharma unit for $21 billion. But even the legacy business primarily serves life sciences and healthcare customers.
Those customers aren’t going to pull back on spending during this pandemic. If anything, they’re going to spend more. In fact, software developer Veeva Systems (NYSE:VEEV), a very different company but one with many shared customers, has seen demand for one of its products rise tenfold.
Meanwhile, Danaher has direct catalysts as well. Its Cepheid unit, acquired in 2016, has launched a 45-minute test for Covid-19. Its IDT unit is looking to do the same.
Admittedly, Abbott Laboratories (NYSE:ABT) has released a test that works in as little as five minutes. But Cepheid and IDT no doubt will work to streamline their own offerings, and demand will be high enough for multiple providers.
There are businesses that will see some short-term pressure from the current pandemic and the ensuing nationwide shutdown. Danaher will see some modest impact. But it’s not nearly enough to support an 18% decline in Danaher stock.
Is Danaher Stock Too Expensive?
Admittedly, there’s one concern: Danaher stock is too expensive. Shares trade at 26 times the 2020 consensus earnings per share estimate.
But even this bear market has shown the risks of chasing “cheap” stocks. In sectors like retail and energy, cheap stocks only have become cheaper. Paying up for quality was the way to success before this pandemic. It’s still the wisest strategy for investors focused on the long term.
In fact, I thought an analyst put it well in upgrading Danaher stock: “Our primary motivation for this upgrade is capital preservation, not bottom-fishing.”
There are bottom-fishing choices out there. Many stocks in this market are cheap. A few probably don’t deserve to be.
But investors timing the bottom risk finding a value trap instead of a value play. Investors looking for huge profits on a Covid-19 play may well wind up disappointed, as I wrote relative to Allied Healthcare Products (NASDAQ:AHPI).
Danaher stock, however, provides both long-term potential and a short-term catalyst. That’s a combination worth paying up for.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. The power of being “first” gave Matt’s readers the chance to bank +2,438% in Stamps.com (STMP), +1,523% in Ulta Beauty (ULTA) and +1,044% in Tesla (TSLA), just to name a few. Click here to see what Matt has up his sleeve now. Matt does not directly own the aforementioned securities.
