Thematic investing has grown immensely in popularity since 2019. At the heart of this movement is Ark Invest, a family of exchange-traded funds (ETFs) shepherded by renowned investor Cathie Wood. The central theme of Wood's Ark Invest is disruption. Ark's goal is to identify and invest in companies with technologies capable of upending the status quo. As a result, Wood's ETFs often buy companies operating in the fields of autonomous vehicles, genomic medicine, and next-generation medical technologies.
Although true disruption is extremely rare, this fact hasn't stopped some Wall Street analysts from handing out noteworthy price targets for some of Wood's holdings. 908 Devices (MASS 1.98%) and Beam Therapeutics (BEAM -1.02%) are prime examples. The consensus price targets for these two ARK holdings imply upside potentials of 49% and 65%, respectively. Are these two small-cap healthcare stocks a buy? Let's take a look under the hood to find out.
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908 Devices
908 Devices specializes in creating novel devices for analyzing chemicals and biomolecules. The company leverages its unique mass-spectrometry technology, which can quickly and accurately detect molecules from complex samples. Mass spectrometry can unmask the identity and quantity of molecules in complex mixtures, such as blood, urine, soil, or air.
The company's devices can be used for various purposes, such as drug development, bioprocessing, forensic investigation, and threat detection, among others. It has two types of devices: handheld and desktop. The handheld devices are portable and easy to use in the field, while the desktop devices are more precise and versatile. Both types of devices can deliver high-quality results in minutes, compared to weeks for traditional lab-based methods.
What's the risk? 908 Devices is in the early growth phase of its life cycle, and it may take the company several years to generate substantial free cash flows regularly. While the company does have enough cash to sustain its operations during this period, the uncertain nature of its business model is an important risk factor that potential investors should carefully consider before buying shares.
Beam Therapeutics
Beam Therapeutics specializes in gene editing. It uses a technology called base editing, which is a more accurate and versatile form of CRISPR.
The company recently announced a strategic update, in which it prioritized three programs: BEAM-101 for severe sickle cell disease, a rare blood disorder that affects red blood cells; BEAM-302 for alpha-1 antitrypsin deficiency, a liver protein deficiency that can cause lung and liver damage; and BEAM-301 for glycogen storage disease, an inherited enzyme deficiency that affects the metabolism of glucose.
Beam has the potential to be a first mover among gene-editors for alpha-1 antitrypsin deficiency and glycogen storage disease, which could offer significant growth opportunities. On the flip side, the company faces fierce competition in sickle cell disease from other gene therapies, as well as from traditional modalities.
Although Beam is still in the early stages of its clinical development for all of its programs, it has an unusually robust financial position, with over $1 billion in cash and cash equivalents as of the end of the most recent quarter. In turn, the biotech shouldn't need to tap the public markets to fund its clinical pipeline anytime soon.
What are the risks? One of the most important risks is the company's extended timeline. Beam is probably two to three years away from submitting a regulatory filing. As a result, shareholders will have to be willing to hold this stock for a prolonged period.
That being said, the company could be developing a best-in-class gene-editing platform capable of bringing effective cures to market for scores of life-threatening diseases. Beam's stock should thus appeal to growth investors willing to take the long view.
