EP110: Conviction Through Chaos
Stock Ideas From Investment Professionals
Welcome, subscribers!
This week’s issue spotlights smart capital allocation and high-conviction investing amid uncertainty. Whether it's leaning into overlooked sectors, capitalizing on temporary macro dislocations, or supporting aligned activist campaigns, the common thread is clear: long-term opportunity hiding behind short-term noise.
If you appreciate quality businesses with strong fundamentals, pricing power, and underappreciated catalysts, this one’s for you.
We’re excited to share 8 new stock ideas in this issue, including:
• A scientific tools provider with a sticky installed base, rising recurring revenue mix, and underappreciated exposure to GLP-1 and sustainability tailwinds.
• A semiconductor titan at the center of the AI buildout, with near-unmatched pricing power, volume leverage, and a geopolitical discount too wide to ignore.
• A panomics instrumentation leader at a profitability inflection point, with family ownership, growing recurring sales, and a proven capital allocation track record.
• A household-name health brand trading well below peers post-spin, where activist pressure is already unlocking smarter marketing and faster growth in lagging segments.
• A semiconductor component supplier with years of underperformance, now targeted by an activist with a flawless playbook for margin expansion and fab consolidation.
Disclaimer: Nothing here constitutes professional and/or financial advice. You alone assume any risk with the use of any information contained herein. We may own positions in the securities listed. Please do your own due diligence.
To the investment managers who read this, you can send us your letters at elevatorpitches@substack.com or on Twitter (and Threads!) if you’d like to be included in a future issue.
Let’s get to it.
Generation Investment Management is betting on a rebound in scientific tools and sees Agilent Technologies (A) as a prime beneficiary. Despite recent headwinds in instrument sales, they view Agilent’s recurring revenue base, expanding end markets, and leadership in life sciences as a compelling long-term opportunity.
At Generation, we believe that we are living through the age of biology. Our understanding of biological processes – and our ability to tweak them for the benefit of humanity – is improving rapidly. Medicine, and biology in general, is often considered the ‘youngest science.’ Agilent, an American company in the portfolio, is the latest company that backs this trend.
To uncover biology’s secrets, researchers need tools to ask the right questions, develop plausible hypotheses and then run the right experiments. These tools include instruments that can measure at scales previously considered impossible. A development in one domain can often lead to developments in another. For instance, a technique for detecting a chemical can find application in a pharmaceutical lab (e.g., to detect active pharmaceutical ingredients) or in regulation (e.g., to detect contamination in food) or even forensics. These positive ‘spillovers’ can have large positive sustainability effects.
The ecosystem of companies that provide these research tools is fertile hunting ground for Generation. We currently own four such businesses. The newest investment in this bucket is Agilent.
OUR INVESTMENT THESIS
Agilent began as part of Hewlett-Packard. It developed instruments that came to be routinely used across chemicals, electronics manufacturing and food testing. Agilent was spun off as an independent company in 1999. Eventually, it also split off its electronic testing and measurement business, allowing it to focus on its life sciences business.
The company today has a leading market position in different analytical instruments. The most important of these include gas and liquid chromatography as well as mass spectrometry. Researchers in many areas use these instruments, with the most important ones being pharmaceuticals, chemical and advanced materials, and several ‘applied’ end-markets covering food and water testing.
Agilent today has one of the largest installed bases of instruments across a highly diversified, global base of customers. This is an enviable starting position. Customers, if treated well, typically tend to stay with their incumbent vendor, creating a steady source of demand. Customers also demand additional services and consumables that allow them to use their instruments most efficiently.
Here it gets a little more complex. When customers face economic uncertainty they can prolong their use of older instruments. In the short run, this can hit revenues.
In the last couple of years, Agilent has experienced a deferral of this ‘replacement cycle.’ Pharmaceutical customers have faced pressure to rein in spending due to a variety of factors including a greater focus on efficiency with inflation and higher interest rates. Smaller biotech customers, which are highly reliant on external capital, felt these pressures acutely. So did customers in China, where the nascent biopharma industry has been under pressure after a period of heady growth in the early 2020s.
This created a challenging backdrop for Agilent, with revenues declining 5% last year driven by a sharp drop in instrument revenues. But a weak share price also provided the perfect entry point for Generation as a long-term investor.
Our investment case on Agilent is underpinned by three beliefs:
1. Eventual recovery in instruments. To the extent that instrument purchases can be deferred but not delayed indefinitely, customers must purchase new instruments at some point. This will kickstart a new replacement cycle. Indeed we may be seeing the first signs of an inflection in demand for instruments. Given the company’s market position, we remain confident in its ability to capitalise on this upcycle.
2. Resilient recurring sources of revenues. To make the business more resilient through down cycles, Agilent has reduced its exposure to instruments (down from 45% of revenues ten years ago to 36% today) while increasing its recurring sources of revenues, namely consumables, services and software. We believe there is room to further increase the ‘attach’ rate of these recurring revenues over time (meaning customers’ revenue that stays with the business).
3. New growth drivers. Additional sources of demand are emerging. On the one hand, there is growing demand for GLP-1 testing as more pharmaceutical companies try to emulate the successes of Novo Nordisk and Eli Lilly. On the other hand, the sustainability transition is creating new testing needs, including battery testing with the rising penetration of electric vehicles. Furthermore, Agilent also occupies a niche position as the manufacturing partner to pharmaceutical companies developing an emerging class of medicines called RNAbased therapies that have promising commercial potential.
Every investment case comes with risks. In the case of Agilent, we are carefully watching collateral damage from ongoing geopolitical uncertainty – i.e., the negative impact of tariffs and reduced governmental support for academic research in the US. As a global company, Agilent will not be immune from these risks. Nonetheless, we maintain that the strength of the business will allow it to weather these storms.
SUSTAINABILITY
We rank Agilent highly on sustainability. The company’s solutions, by their very nature, advance science. That mission also resonates with the company’s operations. Agilent conducts a comprehensive materiality assessment regarding the key sustainability risks facing the company. The company has a net-zero emission target by 2050 with firmwide interim sciencebased targets of reducing Scope 1 and 2 emissions by 50% and Scope 3 emissions by 30% by 2030. The company also fares well on diversity, with a minimum 30% representation of women across all levels of the organisation, including senior leadership roles. We look forward to engaging with the company on its sustainability initiatives and supporting it on its journey.
7 more stock ideas are waiting for paid subscribers, including high-conviction bets on a misunderstood semiconductor giant, a quietly dominant life sciences supplier, and a premium brand with untapped global potential, all bought during peak market uncertainty.
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