In 2010, the US economy and equity markets sustained a strong recovery in the wake of the financial collapse two years ago. Following double-digit gains in 2009, the Dow Jones Industrial Average, S&P 500 and NASDAQ added 11.0%, 12.8% and 16.9% in 2010, respectively. Equity prices benefited from monetary stimulus, improving macroeconomic data, strong corporate earnings and increased consumer spending. While most of the same economic concerns remain prevalent for the new year, such as unemployment, the housing market and sovereign European defaults, enduring corporate gains and presumably further monetary stimulus will lead equity prices higher in 2011.

All four IBO Stock Indexes sustained positive momentum in 2010, posting double-digits gains for the second consecutive year. A number of companies in the Indexes benefited from strong earnings reports, product introductions, stock repurchase plans, and restructuring and other cost-saving initiatives. The Diversified Instrumentation Stock Index led all IBO Stock Indexes, climbing 31.8% to 134.08. All six companies grew in double digits, led by AMETEK, which gained 54%.

The Lab Consumables/Equipment Stock Index returned 24.9%, ending the year at 626.18, with only three of the seven companies advancing. Pall maintained the largest increase, gaining 37%. However, Millipore, which was removed from the Index in July following its acquisition (see IBO 2/28/10) had gained 48% for the year.

The Process/Metrology/Motion Instrumentation Stock Index rose 22.1% to 450.13. All seven companies expanded by double digits, led by Zygo, which jumped 82%.

The Laboratory Instrumentation Stock Index finished the year up 16.6% at 660.07, with 17 of the 21 companies in positive territory. Caliper Life Sciences boasted the highest return in the Index, soaring 150%, and was the largest gainer among all companies in the IBO Stock Indexes.

Aside from Millipore, mergers and acquisitions activity spurred the IBO Indexes values’ higher. OI had gained 45% for the year before being removed from the Laboratory Instrumentation Index in November following its acquisition (see IBO 9/15/10). In December, Beckman Coulter jumped more than 26% on takeover news (see page 2), and Dionex accepted a buyout agreement by Thermo Fisher Scientific at a 20% premium (see IBO 12/15/10).

Other changes to the IBO Stock Indexes in 2010 were the removal of Symyx Technologies, Starlims, ICx Technologies, Varian and RTS Systems due to acquisitions, while Becton Dickinson, Accelrys and Pacific Biosciences were added. Among European companies, Datacolor was added, while Genetix was removed after being acquired (see IBO 12/31/09).

Gainers and Losers

This year’s list of the top five gainers and losers were chosen from the 41 companies in the four IBO Stock Indexes. In spite of strong returns in 2009, a number of companies in the Indexes maintained positive price momentum this year. Dominating the list of top performers are life science companies Caliper, Illumina, Cepheid and Sequenom.

Caliper experienced the largest price increase, improving 150%, as the company significantly reduced cost of goods sold due to divested product lines, which significantly improved gross margins and its balance sheet. Illumina gained 106% following a sharp decline in the latter part of 2009 due to missed earnings expectations. In 2010, the company mitigated production issues and experienced robust demand for new sequencing products.

Sequenom continued its volatile trading pattern, but ended the year with a 94% gain after recording the largest decline among the IBO Indexes in 2009. Continued speculation about the company’s noninvasive diagnostic test remains a primary trigger point. Cepheid rose 82% for the year, as the company narrowed its earnings loss and more than doubled its full-year EPS outlook. The company also reported strong sales for molecular testing in clinical markets. X-Rite gained 110%, driven by higher revenue and profitability, but the company remains well below its historical highs.

However, not all life science companies are created equal as Helicos BioSciences, Affymetrix and QIAGEN topped this year’s list of largest decliners. Helicos suffered the largest contraction, falling 88% due to steep operating losses and lackluster sales. Affymetrix, which fell 14% for the year, was negatively affected by slower sales and competitive pressure. QIAGEN declined 12% as the company lowered its 2010 revenue growth forecast due to lower molecular diagnostic testing revenue. Kewaunee Scientific and Transgenomic declined 5% and 4%, respectively, due to declining revenue growth for the first nine months of the year.

Three-Year Average Growth

Notwithstanding significant declines in 2008 due to the financial crisis, several companies in the IBO Indexes managed to average double-digit gains over a three-year period. Illumina was the only company among this year’s top five gainers to also make the list of top five gainers over a three-year period. The company recorded average annual growth of 38% from 2008 to 2010.

Veeco Instruments recorded the largest average return over the three-year period, climbing by an average of 52% per year. The company reported triple-digit revenue growth for the first nine months in 2010 due to strong orders for LED, solar and data storage products. The LED industry has experienced tremendous growth over the last two years. This growth has also benefited Nanometrics, which averaged 10% annual growth over the three-year period and also recorded triple-digit revenue growth for the first three quarters.

Dionex grew an average of 14% annually over the three-year period due to robust sales and its pending acquisition by Thermo. Mettler-Toledo rounds out the list of top five gainers from 2008 to 2010, averaging a return of 11% a year. The company reported 12.0% revenue growth and a 26.1% jump in EPS for the first three quarters of the year.

Affymetrix and Kewaunee Scientific, which were both among 2010’s top five worst-performing companies, are among this year’s largest decliners using a three-year average. Affymetrix and Kewaunee Scientific contracted an average of 26% and 10% annually over the three-year period, respectively. X-Rite, which was one of 2010’s biggest gainers, averaged an annual decline of 20% for the period. SDIX and RAE Systems also make the list of top five largest decliners over a three-year period, falling by an average of 22% and 14% annually, respectively, due to stagnant revenue growth and operating losses.

International

Intentional equity markets were mixed in 2010, as certain European markets, such as Spain, Italy and France, were distressed by sovereign debt concerns. However, Germany’s DAX climbed 16.1%, and the UK benchmark gained 9.0%. In Asia, the China Shanghai Composite Index fell 15.8% due to the Chinese government’s efforts to slow growth in order to combat inflation. Japan’s Nikkei 225 Index slipped 3.0% due to declining exports and lower profits attributed to a stronger yen. Meanwhile, the Emerging Markets Index, which consists of indexes in 26 emerging economies, climbed 17.4%.

Most international stocks in IBO’s stock table recorded higher results. For the year, four Pacific Rim companies increased in value, led by Techcomp, which gained 40%. JEOL declined 14%.

In 2010, seven European companies in the stock table traded higher by double digits, four declined and two were unchanged. Oxford Instruments led all European firms, climbing 245%, while Alpha MOS fell 22%. Renishaw also experienced strong gains, rising 126% due to significantly higher fiscal full-year EPS results.

Among the 16 international companies in the stock table with a three-year trading history, seven companies recorded annual average gains from 2008 to 2010. Oxford Instruments, Renishaw and Spectris increased by an average of 85%, 32% and 31%, respectively, from 2008 to 2010. All three companies reported significantly higher EPS results and cash reserves due to operational improvements. Biohit also increased by double digits, with average growth of 11% a year.

Exiqon and Cybio lost the most value on average over three years, with each reporting a negative average return of 25%. The other international firms with double-digit losses over a three-year period were Horiba and Alpha MOS, which were down by an average of 15% and 11% per year, respectively. JEOL and Shimadzu were in negative territory for the period, down by an average of 13% and 12%, respectively, due to sharp declines of 42% and 45% in 2008, respectively.

December

In December, US equity markets maintained positive momentum driven by the government’s quantitative easing program, extended tax breaks and positive economic indicators. Retail sales figures and manufacturing were stronger than expected. In addition, on December 14, the Fed left interest rates unchanged at a range of 0% to 0.25%. Despite low volume, the Dow improved 5.2% for the month to end at 11,577.51, the S&P 500 rose 6.5% to 1,257.64 and the NASDAQ improved 6.2% to 2,652.87.

All four IBO Stock Indexes traded higher in December. The Laboratory Instrumentation Stock Index returned 12.1% to lead all Indexes. The Diversified Instrumentation, Lab Consumables/Equipment and Process/Metrology/Motion Instrumentation Stock Indexes improved 10.0%, 8.3% and 2.5%, respectively.

Laboratory Instrumentation Stock Index

In December, the Laboratory Instrumentation Stock Index jumped 12.1%. Nineteen companies traded higher and two companies declined. Beckman Coulter led the Index, soaring 38%, while Helicos slumped 25%.

Sequenom announced on December 2 a common stock offering of 14 million shares priced at $6 a piece. The offering was 11.9% below the previous day’s closing price, leading shares down 0.9%. However, shares rebounded 3.6% on December 15 when the company announced the acceptance for publication of its research findings for its Fetal Trisomy 21 test. On December 22, Sequenom announced the commencement of its validation study for the SensiGene Trisomy 21 laboratory-developed test, boosting shares 6.2%. In other research news, on December 9, Pacific Biosciences announced that it had successfully mapped the pathogen responsible for the recent cholera outbreak in Haiti, leading shares up 5.0% the following day. Earlier in the month, on December 1, shares rose 4% despite the company reporting a larger third-quarter loss of $40.7 million, compared with a loss of $24.5 million a year ago.

Acquisitions also spurred stock returns. Beckman Coulter jumped 26.3% on December 10 when news of its possible sale was leaked. On December 13, Thermo entered into an agreement to acquire Dionex. Dionex and Thermo climbed 20.0% and 4.8%, respectively. On December 17, Fitch affirmed its rating outlook on Thermo as stable, leading shares up 0.6%.

In financial news, on December 6, Bio-Rad Laboratories announced a $425 million senior note offering for the redemption of current outstanding debt. Shares traded marginally lower. On December 15, X-Rite announced a credit rating upgrade from Moody’s to B2 from B3, and an upgrade from S&P Rating Services to B+ from B. Shares increased 2.6%. On the same day, Affymetrix reported the dismissal of two patent infringement lawsuits brought by Illumina (see page 2), leading shares up 9.2% the following day.

Rodman & Renshaw downgraded Sequenom on December 3 to “Market Underperform” from “Market Perform.” On December 14, Piper Jaffray initiated coverage of Sequenom with an “overweight” rating and a $8 price target. On December 6, Deutsche Bank initiated coverage of Pacific Biosciences with a “Buy” rating and a $18 price target. Goldman Sachs initiated coverage of PerkinElmer on December 10 with a “Neutral” rating and a $27 price target. Wedbush downgraded Cepheid on December 14 from “Outperform” to “Neutral.” On December 17, RBC Capital Markets initiated coverage of X-Rite with a “Sector Perform” rating.

Process/Metrology/Motion Instrumentation Stock Index

The Process/Metrology/Motion Instrumentation Stock Index rose 2.5% in December. For the month, four companies increased in value, two companies declined and SDIX was unchanged. FEI recorded the largest gain, improving 11%, and Veeco slipped 2%.

On December 10, RAE Systems agreed to pay nearly $3 million to settle allegations of bribery in China. Shares slipped 2.4% the following trading day. On December 14, Citi downgraded Veeco to “Hold” from “Buy,” citing subsidy concerns in China. Shares fell 15.6%.

Laboratory Consumables/Equipment Stock Index

The Laboratory Consumables/Equipment Stock Index gained 8.3% in December with all seven companies trading higher. Enzo Biochem led the Index, climbing 20%. Kewaunee Scientific reported fiscal second-quarter EPS of $0.33 on December 2 (see page 12), compared with $0.53 a year ago. However, shares jumped 9.4% the following day due to a positive outlook and strong backlog orders. On December 9, Pall announced fiscal first-quarter EPS of $0.62, $0.12 ahead of expectations, and raised its fiscal 2011 EPS by 4% to $2.48–$2.63. Shares climbed 4.1% the following day. Enzo Biochem reported on December 13 a fiscal first-quarter loss of $0.03 (see page 12), $0.03 narrower than consensus, yet shares were unchanged.

In other news, on December 9, Life Technologies announced an $800 million Senior Note offering. Shares improved 1.2% the following day. On December 14, the company launched its Ion Personal Genome Machine sequencer, leading shares up 2.2%.

Diversified Instrumentation Stock Index

The Diversified Instrumentation Stock Index grew 10.0% for the month. Five companies were in positive territory, led by Agilent Technologies, which improved 18%. AMETEK traded modestly lower.

On December 8, Roper Industries announced a quarterly dividend increase of 16% to $0.11 per share. Shares traded marginally lower. On December 15, Danaher increased its fourth-quarter EPS by 2% to $0.64–$0.66 and full-year EPS by 1% to $2.28–$2.30. The company also projected full-year 2011 EPS of $2.55–$2.70, in line with analysts’ EPS consensus of $2.64. Shares rose 1.9% the following day.

JP Morgan upgraded Agilent on December 15 to “Overweight” from “Underweight” and listed a price target of $46 a share. On December 20, R.W. Baird downgraded AMETEK to “Neutral” from “Outperform.” AMETEK completed a three-for-two stock split on December 22. Shares slipped 1.5%.

International Shares

All five Pacific Rim companies traded higher in December, led by Hitachi High-Technologies, which improved 9%. Most Asian markets were resilient in December, despite a surprise rate hike out of China.

This month, nine European companies were in positive territory and four declined. Oxford Instruments recorded the largest increase, rising 20%, while Scientific Digital Imaging fell 24%.

Scientific Digital Imaging announced on December 10 that its full-year earnings would be significantly below expectations due to a product shift and higher expenses. Shares contracted 7.3%. On December 14, Biohit lowered its earnings forecast to below last year’s due to higher costs. The company previously forecasted full-year earnings before taxes would be higher than a year ago. Shares traded modestly lower. Cybio announced on December 16 full-year EPS ending September 30 of €0.14 ($0.19), compared with a loss of €0.15 ($0.20) a year ago. Shares climbed 2.0%.

 Line Graph: IBO Instrument Industry Stock Index
  Lab Instrument Stock Index                      S&P 500
 Dec-08 390.29    216.56
 Jan-09 397.41    198.01
 Feb-09 376.99    176.24
 Mar-09 393.81    191.29
 Apr-09 428.75    209.26
 May-09 446.23    220.37
 Jun-09 479.85    220.41
 Jul-09 522.15    236.75
 Aug-09 528.47    244.70
 Sep-09 543.19    253.44
 Oct-09 535.42    248.43
 Nov-09 548.41    262.68
 Dec-09 565.94    267.35
 Jan-10 546.93    257.47
 Feb-10 566.22    264.81
 Mar-10 585.87    280.38
 Apr-10 596.47    284.51
 May-10 557.61    261.19
 Jun-10 531.11    247.12
 Jul-10 513.20    264.12
 Aug-10 499.94    251.58
 Sep-10 556.95    273.61
 Oct-10 579.40    283.69
 Nov-10 589.00    283.04
 Dec-10 660.07    301.53
 Bar Graph: IBO Stock Indexes’ Top Five Gainers and Losers of 2010
 Company  % Chg. From Dec. 2009
 Caliper Life Sciences 150%
 X-Rite  110%
 Illumina  107%
 Sequenom  94%
 Cepheid  82%
 Transgenomic -4%
 Kewaunee Scientific -5%
 QIAGEN  -12%
 Affymetrix  -14%
 Helicos BioSciences -88%
 Bar Graph: IBO Stock Indexes’ Top Five Gainers and Losers, Three-Year Avg. Annual Growth
 Company                      Growth
 Veeco Instruments                       52%
 Illumina                        38%
 Dionex    14%
 Mettler-Toledo Int'l                       11%
 Nanometrics                        10%
 Kewaunee Scientific                      -10%
 RAE Systems  -14%
 X-Rite   -20%
 SDIX   -22%
 Affymetrix                       -26%
 Bar Graph: IBO Stock Indexes’ Three-Year Avg. Annual Growth Index
                       Growth
 S&P 500   -4.8%
 DJIA   -4.2%
 NASDAQ   0.0%
 Lab Instrumentation  0.2%
 Diversified Instrumentation                      4.1%
 Process/Metrology/Motion                       4.6%
 Lab Equip./Consumables                       8.0%