Which COVID-19 Testing Stocks to Buy as Omicron Cases Surge

The daily new cases of the omicron variant of the COVID-19 virus have surged in the U.S. and the hospitalizations have increased above the peak levels in 2021. Stocks of vaccine makers and companies that provide testing kits have outperformed even though reopening plays have come under pressure. What are the best COVID-19 testing stocks to buy as the omicron cases continue to hit records?

Last week, the daily new cases of COVID-19 in the U.S. surged above 1 million, which was the biggest single-day spike not only in the country but globally. While the omicron variant is far less lethal than the delta variant, the sheer numbers have put the healthcare system under stress with healthcare professionals also getting sick.

Globally, testing for the coronavirus has been recognized as one the most effective methods to contain the spread of the virus. Effective testing and tracing help isolate those infected early, which slows down the spread. This especially holds true for the omicron variant, which might not be as lethal as the previous variants but it's a lot more contagious.

There are two main types of COVID-19 tests—the RT-PCR test and the rapid antigen tests. Along with getting tested at a diagnostic center, you can also opt for FDA-approved at-home testing kits, which are available both online and in stores. The FDA has also authorized some tests where individuals can send the sample to a laboratory for analysis.

The COVID-19 pandemic looks like it's here to stay, which is promising for testing stocks. However, the demand for testing kits will depend on the severity of future COVID-19 waves. Another factor that could dent the demand for testing kits would be higher coverage of vaccination including booster shots. An effective medicine to treat the deadly virus could also dampen the demand for COVID-19 testing.

We already have Paxlovid from Pfizer and Molnupiravir from Merck, which are being used to treat some patients. However, these treatments aren't approved in all jurisdictions. For example, regulators in Europe are yet to take a call in Paxlovid.

The Biden administration has mandated that insurers must cover eight at-home tests each month. This should lead to more demand for COVID-19 testing kits. Fulgent Genetics, which produces RT-PCR kits, looks like a good stock to buy. It almost doubled last year and at an NTM (next-12 month) PE multiple of 11.6x, it looks like a reasonably valued stock to buy.

Quidel Corp. looks like another good COVID-19 testing stock. The stock has underperformed fellow testing stocks and has lost a third of its market cap over the last year. It trades at an NTM PE multiple of around 13x.

Abbot Laboratories, which manufactures BinaxNOW, is another play on COVID-19 testing. The stock is up 21 percent over the last year and also pays a dividend. It has a dividend of 1.39 percent, which is similar to the S&P 500’s yield. Quest Diagnostics and Laboratory of America are the other two plays on the COVID-19 testing theme.