Small-cap stocks are often attractive investments in bullish markets. While a bull market is not guaranteed in 2024, some small caps are already heating up in anticipation of better economic conditions next year. As a result, it might be a smart move to start adding some select small caps to your portfolio ahead of a possible trend reversal in this segment of the market next year.
Within the high-profile innovation theme, Archer Aviation (ACHR 1.00%) and Prime Medicine (PRME 2.91%) offer shareholders two of the most compelling risk-to-reward ratios. To be clear, both companies are in the process of developing products for markets that do not yet exist, which is a significant risk factor. However, each of these small-cap growth companies is also working on technology that could transform the fields of transportation and human medicine, respectively.
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Which of these speculative growth stocks is the better buy? Let's do a side-by-side comparison to find out.
The case for Archer Aviation
Archer Aviation is a leading company in the field of electric vertical takeoff and landing ("eVTOL") aircraft. The idea is to create aircraft that can be recharged and used in urban areas, which can reduce traffic jams and save time for busy professionals. The eVTOL revolution also has positive implications for the environment.
Why is Archer an attractive growth stock? The company is progressing toward the possible launch of its eVTOL aircraft called Midnight. The aircraft can transport up to four passengers and a pilot for up to 100 miles, but Midnight is designed for round trips of around 20 miles. This rechargeable plane could transform the ride-sharing industry. Reflecting this possibility, Wall Street analysts think the eVTOL industry could grow into a $23 billion market by 2030. For reference, Archer currently sports a $1.95 billion market cap.
What's the key takeaway? Archer stock is likely to be volatile during its pre-launch years, but with Midnight's debut expected for 2025, investors may not have to wait too long. With a solid financial position, a potentially game-changing product in development, and a clear demand for alternative transportation systems in the U.S. and abroad, Archer could be a big winner for early shareholders. All that being said, this is a risky stock, given the high degree of uncertainty surrounding the fledgling eVTOL industry.
The case for Prime Medicine
Genomic medicine took a major step forward this year with the Food and Drug Administration's approval of CRISPR Therapeutics and Vertex Pharmaceuticals' Casgevy, a CRISPR/Cas9 edited therapy for sickle cell disease. Even so, this emerging field of biotech is still decades away from realizing its full potential, evinced by the fact that companies are still working through the best overall approach to edit the genome for therapeutic purposes. One of the companies aiming to achieve this goal is Prime Medicine. The biotech is working on a more versatile form of gene editing, called prime editing, that could address scores of genetic diseases.
Prime is a pre-clinical biotech company with 18 programs in development for its cutting-edge gene-editing platform. The company hopes to start human trials as early as next year if everything goes according to plan. The main challenge is that Prime will need a lot of time and money to realize its vision. And without a major partner, the company will probably have to raise funds from the public markets within the next two years. Nevertheless, the company could have a leading platform in the fast-growing genomic medicine field.
Verdict
Archer Aviation is a more attractive investment option at the moment. Prime has a unique gene-editing technology that could create enormous value in the future, but the company faces a longer and more uncertain path to commercialization. Archer, on the other hand, could start generating significant forms of recurring revenue by 2025, and possibly achieve positive cash flow by 2028. Prime is unlikely to reach this financial milestone before Archer, making it a better candidate for a small-cap watchlist than a portfolio.
