Targeting companies with an eye toward the future is working out well for Cathie Wood and the family of exchange-traded funds (ETFs) she manages for Ark Invest. The firm's flagship fund, the ARK Innovation ETF (ARKK 1.05%), delivered a stunning 41.3% return during the first half of 2023.
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If you want to know what most fund managers are up to, you need to wait for the quarterly disclosures they must make to the Securities and Exchange Commission. In a remarkable act of transparency, Ark Invest discloses its trading activity at the end of each day.
These are the stocks Wood and her team of analysts are buying hand over fist right now. Let's look under the hood to see if they also deserve a place in your portfolio.
Ginkgo Bioworks
Ginkgo Bioworks (DNA 10.60%) stock is down about 85% from its previous peak, but Wood is buying it left and right. On July 11 and 12, the Ark Innovation ETF added more than 1.6 million shares of the biotech stock to its portfolio.
It's hard to imagine a company with more disruptive potential than Ginkgo Bioworks. It's making biology easier to engineer with new advancements in genetic engineering, DNA sequencing, and artificial intelligence (AI), just to name a few of its disruptive technologies.
In a nutshell, Ginkgo helps its clients design and culture new microorganisms that produce high-value ingredients from simple feedstocks such as sugar cane. For example, Ginkgo has partnered with Cronos Group to develop microbes that produce tetrahydrocannabivarin (THCV), a cannabinoid hypothesized to reduce the appetite-enhancing effects for which cannabis products are famous.
In theory, Ginkgo could earn a fortune helping clients produce buckets of high-value ingredients with newly engineered microorganisms. In practice, this company is a financial disaster that lost $1.7 billion over the past 12 months. Losses have narrowed significantly in recent quarters, but it's probably best to wait for proof that this company can successfully engineer a viable business model before risking your own hard-earned money.
PagerDuty
Despite an AI-fueled market rally for tech stocks, shares of PagerDuty (PD 3.12%) are down by about 31% this year. Its operations management platform helps tech-support teams rapidly respond to an ever-increasing number of digital incidents before the businesses they work for lose customers.
Wood appears undaunted by PagerDuty's stock market beating. Since the beginning of July, the Ark Innovation ETF added shares of the stock at least five times. Now it makes up 2.3% of the portfolio.
Earlier this year, PagerDuty shares were trading above 56 times forward-looking earnings expectations. The stock fell hard in June when the company lowered its full-year revenue guidance from between $446 million and $452 million to somewhere between $425 million and $430 million.
PagerDuty stock is trading at around 39.1 times forward-looking earnings estimates, which seems fair when you consider how fast those earnings are rising. The company raised its guided range for adjusted earnings to between $0.60 and $0.65 per share. Even the low end of this range represents a 76% gain year over year.
Wood's taking the long view with PagerDuty. She believes that as AI increases the efficiency and productivity of software developers everywhere, demand for the company's automated incident support services will also increase. Scooping up some shares of the stock while it's beaten down looks like a smart move.
CRISPR Therapeutics
CRISPR Therapeutics (CRSP 0.34%) is a clinical-stage developer of next-generation gene therapies. Believing in the power of its gene-editing platform to develop powerful new treatments, Wood added more shares to the Ark Innovation ETF at least twice this month. Now, it makes up nearly 3.5% of the portfolio.
CRISPR Therapeutics has no products to sell yet, but that could change in early 2024. This June, the U.S. Food and Drug Administration (FDA) began reviewing an application for exa-cel, a potential new treatment option for people born with severe sickle cell disease and transfusion-dependent beta-thalassemia.
A single administration of exa-cel is designed to reduce patients' reliance on blood transfusions permanently. The Institute for Clinical and Economic Review, an independent drug industry watchdog, thinks exa-cel can provide health systems with an economic benefit if priced at up to $1.9 million per patient.
Before following Wood into CRISPR Therapeutics, investors should understand that exa-cel will face competition from Zynteglo, a gene therapy from bluebird bio that the FDA approved last August.
At the moment, CRISPR Therapeutics sports a huge $4.5 billion market cap that will come crashing down if the FDA delays approval decisions for exa-cel. It could also tank down the road if a potential drug launch were anything less than a rousing success. Wood isn't wrong to buy this stock, but it's appropriate only for investors with an enormous tolerance for risk.
