Superstar investor Cathie Wood doesn't flinch when she sees a declining stock price. In fact, Wood keeps her cool and often invests in struggling stocks -- as long as the particular company has a compelling long-term story. The result? Wood's ARK Invest has collected shares of some of the world's most innovative companies. Its flagship ARK Innovation ETF is greatly outperforming the S&P 500 index this year, with a 29% gain versus the S&P 500's 13% increase.
In recent days, Wood was at it again -- picking up a stock not only as it dropped, but also as the company reported a billion-dollar quarterly loss. This stock had already been on the decline before the report. I'm talking about coronavirus vaccine maker Moderna (MRNA 1.69%), now heading for a 60% drop this year.
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Both a slip in vaccine demand and Moderna's cost restructuring hurt earnings this quarter, and the company says it will only return to growth as of 2025. Wood wasn't discouraged and bought Moderna stock. Now the question is: Should you follow this top investor into this biotech stock right now?
Moderna's most challenging time
First, let's consider the Moderna story today and the company's future prospects. Right now may represent the biotech's most challenging time ever. Moderna's only commercialized product is the coronavirus vaccine -- and as we head toward a post-pandemic world, demand for it is declining. In response, Moderna chose to reduce its manufacturing footprint to match current and future demand, and this has resulted in various charges.
Between these costs and lower vaccine sales, Moderna posted a $3.6 billion loss in the third quarter. The company also expects vaccine sales to decline further next year, to about $4 billion from an estimate of $6 billion this year. Moderna says the potential launch of a coronavirus/flu vaccine in 2025 could generate stronger demand -- a combined option may appeal to the population that generally opts for annual flu vaccinations. That's about half of Americans, so it might represent a significant revenue opportunity, even if a rival like Pfizer also launches a combined vaccine.
Meanwhile, regulators should decide on Moderna's respiratory syncytial virus (RSV) vaccine this coming spring, and an approval represents another blockbuster opportunity. Yes, competitors launched RSV vaccines this year, but Moderna's would be the only one in a pre-filled syringe format. This makes administration much easier and could win over healthcare providers who aim to save time and avoid errors.
15 products in five years
So, this potential product and a combined vaccine could help Moderna reach its goal of breaking even in 2026. As for growth beyond that, Moderna's set out a clear plan. The company hopes to launch as many as 15 new products across treatment areas over the coming five years. This could equal $30 billion in revenue a few years post-launch.
There's reason to be optimistic about Moderna's chances. These particular programs are in late-stage development, so they've passed several safety and efficacy hurdles. And even if Moderna achieves only part of its goal, we could still be looking at billions of dollars in recurring revenue ahead.
Clearly, Cathie Wood sees opportunity, so she scooped up shares while they're down. Now let's get back to our question: Should you follow this famous investor into the Moderna story today? That depends on your investment horizon and comfort with risk.
Cathie Wood's long-term investing
Ideally, like Wood, it's best to hold on to stocks for the long term, or at least five years. But if you aim to invest for a somewhat shorter period of time and/or you're not comfortable with risk, Moderna probably isn't the best choice for you. The stock may face more pressure as it navigates these difficult times.
If you plan on investing for the long term, though, and you can handle a bit of risk, Moderna makes a great buy right now. Of course, the stock could slip further, but timing the market is a risky and impossible game that isn't much fun to play. Instead, it's best to pick up shares of a company when they look reasonably priced -- and over time, if the company is successful, you're likely to win too.
Right now, Moderna trades for about 8 times forward earnings estimates, which looks cheap for a company that could launch multiple products across different treatment areas over the next few years. Cathie Wood loves getting in on growth stories early and at a bargain price, so if you do too, you'll probably want to follow her into this promising one.
