Cathie Wood’s promise to buy shares through her from companies working on disruptive innovations ARK Innovation ETF And ARK Genomic Revolution ETF, puts her investment style on the riskier end of the spectrum, especially when investing in already risky areas such as biotechnology. But if her thesis is correct, the upside for investors could be huge, assuming they can tolerate a very long and bumpy ride between buying shares and seeing the payout.
On that note, let’s look at a few of Cathie Wood’s picks that are prototypical of her high-risk, high-reward approach to growth stock investing.
1. Ginkgo Bioworks
You’ve probably heard of semiconductor foundries, which take customers’ designs for microchips, iron out any outstanding technical details that might prevent implementation, and then manufacture them on an industrial scale. The point of working with a foundry is that its vast production capabilities give it access to economies of scale, so customers can purchase custom chips at a much lower unit cost than they would have to spend if they tried to produce them in a factory. -house.
Ginkgo Biowerk (NYSE: DNA) aims to be a biofoundry platform for the biopharmaceutical industry, creating blueprints for customized microorganisms or biomolecules and then producing them cheaply and in large quantities.
Cathie Wood last bought Ginkgo on May 10, and Ark Invest owns about 10% of the company, although it represents only about 1% of the value of its total portfolios. The reason behind her investment is clear.
Biofoundries are not nearly as widespread or accepted in the biopharmaceutical sector as semiconductor foundries are in the semiconductor industry. If Ginkgo can make the concept work profitably at scale, it will be the first, largest and best-known biofoundry to do so, making it a lucrative company to own shares in. In such a situation, the scale required for manufacturing operations to be profitable will act as a natural line of defense against competitors, who are likely to be smaller and therefore more expensive to customers.
Still, Wood is known for investing in companies that aren’t yet fully proven, and this one is no exception. Ginkgo’s first-quarter revenue was $37.9 million, but operating losses were a whopping $178 million.
Management has not given any indication as to when the company will be profitable, although it plans to report positive adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) before the end of 2026. At the same time, the quarterly operating margin has fallen. At no point in the past three years has the situation been positive, and there is no clear trend in that direction. So investors who buy these stocks are betting that efficiency will increase quickly soon, which may or may not happen.
2. Recursion drugs
The biotech Recursion pharmaceutical products (NASDAQ: RXRX) creates a drug discovery and development platform that makes extensive use of artificial intelligence (AI). The goal is to pass lower costs on to customers and reduce the number of failures in clinical trials. It is also pursuing more traditional biotech products, such as developing drugs itself and selling promising leads for new drugs to other companies, so it has the potential to capture revenue from at least three different segments.
Cathie Wood has been buying the shares regularly in recent months and represents almost 2% of Ark Invest shares.
The desired endgame for its investment is a situation where Recursion’s drugs are commercialized, the platform attracts big-money contributors, and its cache of leads and biological data attracts licensors from around the world. This would give the company a flywheel in which low-cost, high-margin revenue streams, such as licensing its data or providing access to its AI platform, provide the means for more expensive and risky revenue streams with more potential benefits, such as research and development (R&D). ) of new therapies.
But Recursion is still far from that favorable state of affairs. The most advanced programs are only in Phase 2 clinical trials, so it could be years before they reach the market, if they ever do. Although it has some high-profile employees such as RocheQ1 revenue was only $13.8 million, far lower than R&D expenses of $67.6 million. So this is another company that has not yet proven itself, and the risk of an investment losing value is high.
However, because its three-pronged approach to business isn’t nearly as capital-intensive as Ginkgo’s, it’s probably a somewhat safer bet. If you’re so inclined, nibbling on a few stocks isn’t a bad idea.
Should you invest $1,000 in Ginkgo Bioworks now?
Consider the following before purchasing shares in Ginkgo Bioworks:
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Alex Carchidi has no position in any of the stocks mentioned. The Motley Fool recommends Roche Ag. The Motley Fool has a disclosure policy.
2 Cathie Wood Biotech Stocks That Could Be Worth the Risk was originally published by The Motley Fool
