ARK Invest CEO Cathie Wood is well-known for her bullish views about several high-profile stocks. Tesla especially stands out among them, particularly given ARK's controversial price target for the stock.
However, Wood also thinks highly of some companies that most investors have never heard of. Here are a pair of under-the-radar stocks she loves that could be huge winners.
Is success in their genes?
The top 10 holdings in Wood's ARK Genomic Revolution ETF (ARKG -4.67%) primarily consist of widely followed healthcare stocks such as Teladoc Health and Regeneron Pharmaceuticals. But there are a couple of stocks in the ETF's top 10 that aren't as well known.
Twist Biosciences (TWST 1.09%) currently ranks as the fifth-largest position in ARKG, and Fate Therapeutics (FATE -8.01%) is No. 10. It's no twist of fate (sorry, I couldn't resist) that Wood likes these two biotech stocks.
Wood stated in December that she thinks "the biggest upside surprises are going to come from the genomic space." She added that this is "because the convergence of DNA sequencing, artificial intelligence, and gene therapies are going to cure disease."
Twist Biosciences and Fate Therapeutics are following different routes in their efforts to cure diseases. Twist developed a technology platform that allows synthetic DNA to be manufactured. Fate is working on cell therapies targeting multiple types of cancer.
Why they could be huge winners
Over the last year, Twist's share price has soared more than 400% while Fate's shares have nearly quadrupled. However, the market caps of both companies remain well under $10 billion.
Twist generated revenue of more than $90 million in 2020, up nearly 66% year over year. The company estimates its potential market in synthetic biology is around $1.8 billion per year. It also offers next-generation sequencing products and services that should have an annual addressable market of over $1 billion.
But Twist has its eyes on even more lucrative markets. The company is developing antibodies for biopharmaceutical companies. It's also working on an approach to store data in DNA.
Meanwhile, Fate Therapeutics' pipeline includes seven clinical-stage cell therapy programs. In December, the company announced positive interim results from an early-stage clinical study of its experimental cell therapy FT516 in combination with rituximab in treating B-cell lymphoma.
Fate has attracted the attention of a couple of bigger companies. In 2018, Japanese drugmaker Ono Pharmaceuticals teamed up with it to develop off-the-shelf cancer cell therapies. Last year, Johnson & Johnson partnered with it to develop cancer immunotherapies.
Off-the-shelf cell therapies should be less expensive than current cell therapies, which require patients' cells to be genetically engineered at off-site facilities. Fate believes that its experimental off-the-shelf cell therapies could be best-in-class treatments for lymphoma and melanoma. If the biotech is right, its products could one day rake in billions of dollars in sales each year.
Not for the faint-hearted
Neither of these stocks is well-suited for faint-hearted investors. Both Fate Therapeutics and Twist Biosciences are highly risky.
Fate is still a long way from earning regulatory approval for any of its pipeline candidates. None have yet advanced beyond early-stage testing.
Twist remains unprofitable despite its strong revenue growth. There's no guarantee that the company will be able to achieve its ambitious goals of becoming a big winner in multiple markets.
However, Wood is probably right that huge upside surprises will come from the genomics arena. Fate and Twist could be the stocks that deliver on her prediction. And if they start delivering trial results that make those positive outcomes look more likely, they might not be under-the-radar stocks for too much longer.