A portfolio manager at a $100 billion firm shares 3 COVID-19 vaccine and test manufacturers that could have tailwinds for years ahead — including one with 35% upside

  • The end of the pandemic looks to be in sight as vaccinations increase.
  • But COVID-19 could still be here to stay.
  • If it is, these 3 vaccine and diagnostic makers will see big revenue increases, David Powell says.
  • See more stories on Insider’s business page.

With vaccinations ramping up in the US and around the world, the end of the pandemic seems to be in sight. 

Cases of COVID-19 in countries with high vaccination rates, like Israel, have significantly fallen over the last few months. By the end of this year, pre-pandemic normalcy may largely be a reality.

But that doesn’t mean COVID-19 will completely go away. Experts have said the virus is likely to linger, and it is still possible that vaccines will have to be administered on an annual or semi-annual basis, similar to how flu shots are now.

This adds potential tailwinds to firms who produce diagnostic tests and vaccines, according to David Powell, co-portfolio manager of Brown Advisory’s Large-Cap Sustainable Growth Strategy (BAFWX). Brown Advisory manages over $100 billion in assets.

In an interview with Insider, he highlighted three firms — all of which he had invested in prior to the pandemic based on fundamentals, and which he thinks have only become stronger because of it — he sees having strong upside potential thanks in part to their COVID-related products going forward.

3 stocks that could have tailwinds for years ahead

Two of the firms produce COVID-19 diagnostic devices, which he said will continue to be used in the years ahead. They are Danaher (DHR) and ThermoFisher (TMO).

“Who knows how long COVID is going to be a problem? But I think we’ll always want to diagnose it going forward. And the beauty of Danaher and Thermo offer is a combination diagnostic, and what that means is instead of just having a flu diagnostic, they can combine it with COVID, and it’s sort of a two-for-one type of diagnostic,” Powell said.

“Anytime you have flu symptoms — headache, runny nose, cough, anything like that — you’re really not going to know whether it’s the flu or COVID,” he added.

Further, Danaher and ThermoFisher also produce COVID-19 vaccines. Powell said the companies are two of a small number of firms that have the ability to produce these vaccines at large scale. 

Powell also likes West Pharmaceutical Services (WST). The company produces a type of rubber that is used to help store COVID-19 vaccines and therapeutics. 

“Think of the rubber stopper at the end of a vial of a vaccine. That’s not just any rubber. That’s a very sophisticated technologically-enabled, sanitized stopper that only a few companies in the world can produce at scale around the world, and West is the leader in providing that,” he said.

If vaccines are needed beyond this year on a regular basis, Powell said it represents a big opportunity for these three firms, as well as for investors, who aren’t pricing in such an outcome yet. 

“If we need a booster shot on an annual basis, we’re talking about billions and billions of shots. That’s a revenue stream that these companies didn’t have before that’s just layered onto their business,” Powell said. “I don’t know if that’s going to happen or not, but if it does, I don’t think it’s being reflected in the stock prices.”

In addition to these tailwinds and strong fundamentals outside of pandemic-related revenue, one reason Powell likes these firms is because of how fast they were able to respond to the virus’ outbreak last year. He said it proved the ability of their management teams to be nimble and avoid bureaucratic slowdowns. 

In order of conviction, Powell likes Danaher and West the most, followed by ThermoFisher.

On a three-year timeline, after analyzing things like guidance on revenue and earnings and the company’s ability to beat these metrics, Powell said he thinks Danaher has an upside of 35%, West Pharmaceutical Services 25%, and ThermoFisher 20% if their bull-case scenarios play out.

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