Thursday, June 5, 2008

Recession or Not; Here DGX Comes

It is no secret that the Healthcare sector usually outperforms the market during recessions or quasi-recessions. Whether or not the U.S. Economy is in one right now is not a concern for Quest Diagnostic (DGX).

30 Minute waits? You're not at the DMV. You're at DGX. Quest Diagnostic is the nation's leading provider of any kind of blood test you can draw up, serving over 500,000 patients everyday. In a recession, the logical thought is: What will NOT change? Clearly health concerns are not going away and, now more than ever, tests are needed to check cholesterol levels and aid in the diagnosis of diabetes. With a growing population, increased longevity, and the aging 'baby boomers', the demand for blood and urine screening is hardly going to be overlooked. This company is about as secular as General Mills and Coca-Cola.

"Laboratory test results impact more than 70% of healthcare decisions," says CEO Dr. Surya N. Mohapatra.

Dr. Mohapatra also knows how to keep up with the times. First announced in February, Quest Diagnostics and Google Health agreed to team up to provide test results online. Physicians are the point men for this service through Quest's Care360 connectivity program. Patients can now have instant access to their medical records from home without fully sacrificing contact with their doctors.

They have also expanded into international markets, namely Mexico, with operations in Mexico City. Look for further expansion with increased demand abroad.

In terms of the stock and how it would fare during a recession, MotleyFool had a great little piece about the 2001 recession. After the tech bubble burst and the economy sunk, strong fundamental companies, like Quest Diagnostic, more than held their own ground:

Data from the Motley Fool article:

DGX Closing price:

Three analysts either rolled out coverage or changed opinions on DGX in 2008:

Feb '08: Credit Suisse upgraded DGX to Outperform.
Apr '08: Citigroup initiated a Buy on the stock.
May '08: Oppenheimer followed with a Buy rating.

Quest Diagnostics does not come without its critics- 11.25% of the float is short with 24 days to cover. Granted, the stock trades on light volume compared to some of its peers, but any good news could send this stock right back to 52-week high levels of $58.

Disclosure: I'm long DGX as of 6/4/08.

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