Investors have shown a lot of interest in thematic exchange-traded funds (ETFs) since 2019. These funds focus on specific themes or sectors expected to grow rapidly in the future. One of the prominent players in this space is ARK Invest, headed by Cathie Wood. Wood invests in disruptive innovation in fields such as biotechnology, fintech, telecommunications, and more.
Many of her thematic ETFs have achieved remarkable returns this year. However, they also have high expenses due to their active management approach and high volatility due to the early-stage nature of many of the companies in these funds. However, her ARK Invest funds can still be a useful source of ideas for investors who do not want to pay high fees or own an actively managed ETF.
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Which Cathie Wood-owned stocks are worth buying right now? Although both of these biotech stocks are speculative, aggressive investors should consider leaning into Ginkgo Bioworks Holdings (DNA 10.60%) and Recursion Pharmaceuticals (RXRX 3.57%) ahead of the new year. Here's why.
Ginkgo Bioworks: Customized biology
Ginkgo Bioworks, Ginkgo for short, is a pioneer in the field of synthetic biology. The company does not create products for consumers but rather enables the creation of biologically based products by improving the efficiency of the design-build-test-learn cycle. One of the key advantages of its business model is that it benefits from network effects as it acquires more customers and data. So, Ginkgo stock might be an attractive opportunity at the moment.
This year, the company has expanded its presence in the pharmaceutical research and development space. That includes partnering with Pfizer for the discovery of RNA-based therapeutics and with privately held Arbor Biotechnologies for novel gene-editing tools.
Moreover, Ginkgo has joined forces with Google Cloud to develop large language models for biological engineering. These business development transactions are proof positive that its novel value proposition is indeed landing with major players across industries and disciplines.
What are the risks? Ginkgo is still less than three years out from its initial public offering (IPO), which tends to be a time of high volatility and low returns for investors. Ginkgo's share price has plummeted 84% since its debut, and this trend may not reverse anytime soon. After all, many of the biotech's biggest target markets are still in the experimental phase, so its annual revenue haul is still modest.
But the potential with this Wood's pick is enormous. Ginkgo's addressable markets across agriculture, biosecurity, pharma, and more are worth hundreds of billions of dollars today and are growing rapidly. So, if you are comfortable with risk and willing to wait, Ginkgo stock may be a good addition to your portfolio during this exciting growth phase in the company's history.
Recursion Pharmaceuticals: A novel approach to drug discovery
The U.S. pharma market is expected to reach $636 billion in sales in 2023, according to a report by the American Society of Health-System Pharmacists. However, the process of developing new drugs is still slow, costly, and risky. The pharma industry is looking for ways to leverage artificial intelligence (AI), machine learning, virtual reality, and automated experiments to overcome these challenges.
Recursion Pharmaceuticals is one of the pioneers in this emerging field of biotechnology. In 2023, Recursion teamed up with Nvidia to enhance the computing power of its Biohive-1 supercomputer. It also joined forces with precision oncology company Tempus to share data.
The main goal of these partnerships is to expand the scope of the company's unique techbio platform, which aims to accelerate the drug discovery process in high-value areas such as oncology cost-effectively.
This concept seems rather attractive from a potential upside perspective, which is probably why some analysts have given the biotech's shares a noteworthy price target this year. However, investors should keep in mind that this is a long-term project, and the true value of this approach will likely not be fully understood for at least another five years.
Nevertheless, Recursion's trailblazing efforts could result in a huge payoff for early shareholders, possibly making its shares a valuable addition to a portfolio oriented toward long-term growth.
