Although growing slower than in 2013, the US equity bull market continued to rally in 2014, capping a nearly six-year run. Spurred by loose monetary policy, sturdy corporate profits and improved economic data, the Dow Jones Industrial Average, S&P 500 and NASDAQ advanced 7.5%, 11.4% and 13.4%, respectively, in 2014. US equity markets withstood a number of uncertainties including the end of quantitative easing, weather-related disruptions and slowing economic growth abroad.

Despite similar headwinds as well as challenging academic markets and delayed orders in China, all four IBO Stock Indexes advanced. The Process/Metrology Instrumentation Stock Index climbed 26.8% to 1,149.63 as a result of Merck KGaA’s proposed acquisition of Sigma-Aldrich (see IBO 9/30/14). The Laboratory Instrumentation Stock Index grew 19.1% to 1,161.80. Also recording double-digit growth was the Diversified Instrumentation Stock Index, which climbed 10.0% to 237.44 for the year. The Lab Consumables/Equipment Stock Index rose 8.1% to 835.00.

A number of companies in the IBO Stock Table traded at record highs this year as a result of improved revenue growth, stronger-than-expected adjusted EPS and acquisitions. It was a notable year in the race for competitive positioning as Illumina further dominated the sequencing market and Thermo Fisher Scientific extended its lead as the largest supplier of research instruments and consumables. However, it was also a challenging year for a number of companies, such as Agilent Technologies and Bruker.

There were several additions to the IBO Stock Table this year. VWR was added to the Lab Consumables/Equipment Stock Index following its IPO. Shares have advanced 23% since its IPO on October 2. Horizon Discovery was added to the list of European companies in March and has risen 12%.

Major Life Science and Diagnostic Companies

Illumina led all companies in the IBO Stock Table in 2014 and significantly outperformed all its peers in the life science and diagnostics space. Shares jumped 66.9% for the year and grew by an annual average of 82% over the last three years. The company projected 2014 revenue and adjusted EPS to grow 30% and 47%, respectively. EPS growth also benefited from higher sequencing-instrument and service margins as well as improved production efficiencies. While the company carries a substantial price-to-earnings multiple of 70 based on 2014 EPS estimates, Illumina’s large installed base of sequencing instruments, expanding interest from commercial and research markets, and growth opportunities in clinical diagnostics should continue to drive healthy earnings and revenue growth. Sales and adjusted EPS should each grow around 20% in 2015.

Affymetrix continued its impressive financial turnaround as the company beat adjusted earnings estimates in each of the first three quarters and projected adjusted EPS to grow 150%, the highest estimated growth among all companies in the IBO Stock Table. Earnings were driven by improved profitability and stronger revenue growth. The company also expanded gross margins as a result of manufacturing efficiencies and lower material costs by insourcing certain projects. In addition, production expenses for the microarray business also tapered as manufacturing was moved to Singapore. However, adjusted EPS growth is expected to normalize in 2015, with growth in the high single digits. For the year, shares climbed 15.2% and have advanced by an average of 34% over the last three years.

Becton, Dickinson also recorded strong double-digit growth, climbing 25.9% for the year. The company recorded revenue and adjusted EPS growth of 5% and 9% for the fiscal year ending September 30, respectively. Although the Medical and Biosciences segments performed well, especially in emerging markets, Diagnostic sales grew at a lower rate than the company average. EPS also benefited from share repurchases, which amounted to $400 million in the fiscal year.

Similar to Illumina and Affymetrix, both Thermo and PerkinElmer have recorded strong annual stock price returns over the last three years, climbing by an average of 41% and 30%, respectively. Thermo, whose shares grew 12.5% for the year, has maintained its growth strategy through acquisitions and continues to build upon its scale and scope. The company projected 2014 revenue and adjusted EPS to each grow roughly 28% including the acquisition of Life Technologies (see IBO 4/15/13).

After strong double-digit price gains in the previous two years, PerkinElmer advanced 6.1% in 2014 due to demand for its newborn- and prenatal-screening and infectious-disease testing businesses. Despite lowering its full-year adjusted EPS after the third quarter, earnings are expected to grow 15% compared to 1% growth in 2013. However, the stronger EPS growth is attributed to ongoing restructuring efforts. In addition, full-year sales are estimated to grow a modest 3% due to currency headwinds, weak radiochemical sales within the Research business and delayed government spending for environmental and safety products in China.

Waters also faced weak demand in China from industrial and applied markets. However, the company managed to improve revenue and adjusted EPS growth compared to the last couple of years due to stronger demand from government and academic customers in Europe, strong pharmaceutical sales and product introductions for drug-discovery applications. Adjusted EPS results also benefited from higher margin growth and stock repurchases. For 2014, sales and adjusted EPS are expected to grow 5% and 7%, respectively. Shares advanced 12.7% for the year.

Not all life science and diagnostic companies recorded gains in 2014. Luminex fell 3.3% for the year despite projected 2014 EPS growth of 21%. However, sales growth is projected to slow to 6% due to weak demand in the Technology and Strategic Partnerships business. Bio-Rad Laboratories slipped 2.5% for the year as the company announced a bribery settlement (see IBO 11/15/14) and significantly missed third quarter adjusted-EPS expectations due to pricing pressures in the diagnostics business.

QIAGEN declined 1.5% for the year following gains of 31% in each of the previous two years. The company posted adjusted EPS in line with expectations for each of the first three quarters and projected full-year sales and EPS to grow 4% and 6%, respectively. Despite strong molecular diagnostics sales, growth was partially offset by weak US HPV sales, slow academic demand and currency. The company also delayed the introduction of its sequencing instrument. Despite the possibility of increased competition within the molecular diagnostics space and weak academic markets, the company should be able to elevate adjusted EPS growth over the next several years to mid- to high single digits.

Bruker slipped 0.8% for the year, as the company missed third quarter EPS estimates due to weaker-than-expected demand in Asia. Full-year sales and EPS are projected to decline 1% and 3%, respectively. Similarly, Agilent, which was slightly higher for the year, faced a number of headwinds, including slower growth in Europe and China.

Other companies in the IBO Stock Indexes were also mixed. Following a gain of 207.6% in 2013, Pacific Biosciences advanced 49.9% in 2014. Full-year sales are projected to jump 107%, and adjusted EPS loss is expected to narrow 25% due to the development agreement with Roche and increased system placements. Enzo Biochem jumped 52.1% as the company improved sales and margin growth.

Conversely, Fluidigm fell 11.9% in 2014 despite strong organic revenue growth, better-than-expected EPS and increased guidance. The company posted strong demand for production genomics and single-cell genomics applications and projected 2014 revenues to grow 63%. Similarly, NanoString Technologies contracted 19.2% for the year in spite of strong 2014 revenue growth projections of 49%.

International

Most major international equity indexes advanced in 2014, with the exception of South Korea’s Kospi, Malaysia’s KLCI, the UK’s FTSE and France’s CAC. China’s Shanghai Composite led all major global indexes, soaring 52.9% to close at its highest since January 2010. The People’s Bank of China cut interest rates and eased lending criteria in late 2014. India’s Sensex 30 rose 29.9%, with its strongest growth in five years. Following a return of 56.7% in 2013, the Japan’s Nikkei 225 advanced 7.1% in 2014. Japan accelerated its stimulus measures to help offset the negative effects of a sales-tax hike, rising unemployment and low inflation.

Prices for six of the seven Pacific Rim companies advanced in 2014, including five in double digits. Shimadzu and Hitachi-High Technologies recorded the strongest gains, rising 34.6% and 32.5%, respectively, while Techcomp fell 20.0%.

European equity markets performed modestly due to geopolitical turmoil in Russia, rising deflationary risk and slower manufacturing activity. Germany is projected expand GDP by a modest 1.3% in 2014 and roughly 1.0% in 2015. The German DAX expanded only 2.7% for the year.

In 2014, nine European companies in the IBO Stock Table advanced and six declined. Biotage recorded the largest gain among the European firms, rising 31.0%, while Alpha MOS fell 60.2%.

Based on a three-year average return from 2012 to 2014, 16 of 19 international companies in the Stock Table have recorded share gains. Over the three years, Precision System Science, JEOL and Sartorius shares increased by an average annual return of 92%, 48% and 47%, respectively. Alpha MOS recorded the largest decline over the three-year period, falling by an annual average rate of 42%. For the same period, Exiqon and Techcomp have declined by an annual average of 10% and 7%, respectively.

December

US equity markets were volatile in December as higher-than-expected industrial production and third quarter GDP growth of 5.0% was offset by a sudden rise in initial jobless claims and growing concerns about slowing global demand. Despite a 421-point gain for the Dow on December 18, the largest single day increase since 2011, the Index ended the month flat. The S&P 500 slipped 0.4%, and the NASDAQ fell 1.2%.

Three of the four IBO Stock Indexes advanced in December, while the Laboratory Instrumentation Stock Index declined 1.6%. The Process/Metrology Instrumentation, Lab Consumables/Equipment and Diversified Instrumentation Stock Indexes improved 4.4%, 1.4% and 0.3%, respectively.

Laboratory Instrumentation Stock Index

In December, the Index contracted 1.6% as half the companies traded lower, led by Transgenomic, which fell 10.7%. Sequenom recorded the highest return, gaining 23.3%. On December 3, the company announced a patent settlement with Illumina for the use of prenatal-testing technology and will receive an initial $50 million payment and unspecified future payments through 2020.

In other financial news, Becton, Dickinson announced plans on December 4 to offer new senior unsecured notes to help fund the acquisition of CareFusion. The offering received a provisional short-term “Baa2” rating from Moody’s Investors Services. On December 18, Goldman Sachs downgraded Bruker from “Buy” to “Sell” and cut its price target from $21 to $15 per share. On the same day, Bank of America upgraded Cepheid from “Neutral” to “Buy” and raised its price target from $56 to $60 per share.

Process/Metrology Instrumentation Stock Index

The Index expanded 4.4% this month, with four companies trading higher, while Veeco Instruments fell 6.8%. Nanometrics had the highest return, climbing 13.3%. The company was upgraded on December 2 by Stifel from “Hold” to “Buy.”

Laboratory Consumables/Equipment Stock Index

The Index grew 1.4% in December, with half the companies advancing and the other half trading lower. Pall had the highest return, climbing 5.3%, while VWR declined 3.5%.

Kewaunee Scientific reported on December 2 that fiscal second quarter 2015 EPS ending October 31 grew 12% to $0.45. On December 9, Enzo Biochem reported that fiscal first quarter 2015 EPS loss ending October 31 widened by $0.01 to $0.08, in line with expectations.

On December 10, Janney Montgomery Scott upgraded Techne from “Neutral” to “Buy.” On December 18, Goldman Sachs downgraded QIAGEN from “Neutral” to “Sell” and lowered its price target from $21 to $19, citing limited growth prospects.

Diversified Instrumentation Stock Index

The Index advanced 0.3% this month despite a majority of the companies declining. AMETEK recorded the largest gain, rising 3.3%, while Teledyne Technologies fell 3.9%. On December 11, Danaher projected 2015 adjusted EPS of $4.35–$4.45, ahead of expectations. On December 17, Roper Industries raised its quarterly dividend by 25% to $0.25.

International Shares

Asia Pacific equity indexes were mixed in December, including flat growth for the Nikkei 225. Monthly prices for the Pacific Rim companies varied as well. JEOL recorded the strongest gain, rising 11.4%, while Precision System Science fell 11.4%.

European equity markets contracted in December. However, all UK-based companies in the IBO Stock Table advanced for the month, led by Horizon Discovery, which climbed 20.0%. Prices for most other European companies in the Stock table traded higher in December. Exiqon recorded the highest return among all companies in the Stock Table, jumping 30.8% for the month.

Tecan advanced 4.4% for the month despite a lackluster trading report on December 1. The company lowered its full-year organic growth outlook from mid-single digits to low single digits due to timing of orders and weakness in China within the Life Sciences business. On December 19, Analytik Jena reported that fiscal 2014 EPS loss widened 116% to €1.21 ($1.64) due to the significant currency impact of the Russian ruble on the Project business.