Illumina, Inc. (ILMN), Gartner Inc (IT): Top 2 Positions of a Successful Opportunity Fund

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Mike Lippert, the portfolio manager of Baron Opportunity Retail Fund, has managed to generate outstanding returns in the past ten years. This fund gets a four star rating from Morningstar, delivering a sweet 10-year-annualized return of 12.40%, beating the S&P 500’s return of only 8.05% during the same period. Year-to-date, it gained by nearly 21%, a bit higher than S&P 500’s gain of 19.62%. The top two stocks in its portfolio were Illumina, Inc. (NASDAQ:ILMN) and Gartner Inc (NYSE:IT). Let’s take a closer look to see whether or not we should follow Mike Lippert into those two stocks.

Illumina, Inc. (NASDAQ:ILMN)

The biggest player in the sequencing market

Illumina, Inc. (NASDAQ:ILMN) is Baron’s largest position, accounting for nearly 4.1% of the total portfolio. Incorporated in 1998, it is the leader in manufacturing and developing of life science tools and integrated systems for genetic analysis. The company generated around $568.4 million, or 49.5% of its total revenue, within in the U.S., while Asia-Pacific ranks second with nearly $232.5 million in sales. The company reported that most of its revenue (64%) derived from consumable sales, while instrument sales accounted for 27% of total 2012 revenue.

In the past four years, Illumina, Inc. (NASDAQ:ILMN) has consistently grown its top line and generated positive cash flow. Revenue increased from $666 million in 2009 to nearly $1.15 billion in 2012, while free cash flow fluctuated in the range of $119 million to $279 million during the same period. For the full year, Illumina, Inc. (NASDAQ:ILMN) expects to grow its revenue by 20%, and its non-GAAP EPS might come in at around $1.68 – $1.72, including the acquisition impact of Verinata and Advanced Liquid Logic. Illumina, Inc. (NASDAQ:ILMN) is trading at $78.80 per share, with a total market cap of $9.86 billion. The market values Illumina, Inc. (NASDAQ:ILMN) at as much as 38.9 times its forward earnings.

Mike Lippert likes Illumina was the best company with the dominating position in the DNA-based tests business, with around 100% share of the sequencing instruments in the U.S. He likes the high amount of recurring revenue coming from consumables, which was sold in every test the customers do.

Much more expensive than Life Technologies Corp. (NASDAQ:LIFE)

Compared to one of its peers, Life Technologies Corp. (NASDAQ:LIFE), Illumina has a much higher valuation. Life Technologies Corp. (NASDAQ:LIFE) is trading at $74.80 per share, with a total market cap of $12.90 billion. The market values Life Technologies Corp. (NASDAQ:LIFE) much more cheaply, at only 16.4 times its forward earnings. Life Technologies is the global biotech company, offering around 50,000 end-to-end solutions to more than 75,000 customers in more than 180 countries.

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