After a tough 2022, Cathie Wood's investment in innovation paid off last year. The superstar investor's flagship Ark Innovation soared 67%, well surpassing the gains of the S&P 500 index. This is great, but Wood counts on taking her bets many steps further -- she expects stocks in Ark Innovation and her other funds to advance over the long term.
That's why Wood snapped up more shares of CRISPR Therapeutics (CRSP 0.34%), Recursion Pharmaceuticals (RXRX 3.57%), and Toast (TOST 3.42%) -- at bargain prices -- this week. Let's take a closer look at these top picks.
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1. CRISPR Therapeutics
Cathie Wood appreciates innovation in healthcare, and that makes her a big fan of gene editing, or the correcting of faulty genes responsible for disease. So it's no surprise she's buying CRISPR Therapeutics' shares hand over fist. The company recently won the world's first regulatory approval for a product based on CRISPR gene editing technology.
Analysts expect this product -- Casgevy for blood disorders -- to become a blockbuster, bringing in billions of dollars in revenue. U.S. regulators gave Casgevy the nod for sickle cell disease last month and are set to decide on the product for beta thalassemia in March.
CRISPR Therapeutics will share profits with partner Vertex Pharmaceuticals, but this should still leave the gene editing specialist with enough to help advance the rest of its pipeline. And speaking of pipeline, CRISPR Therapeutics recently broadened its work into autoimmune diseases, aiming to launch a clinical trial in the first half of this year. The company is also advancing two promising immuno-oncology candidates through clinical studies.
Meanwhile, CRISPR Therapeutics' financial situation is attractive, particularly for a biotech at this stage of development, with more than $1.7 billion in cash. The company has also licensed out its gene editing technology to Vertex for another program, and has already collected more than $170 million in upfront and milestone payments.
Today, CRISPR Therapeutics shares trade at much lower levels than they did a few years ago -- and potential Casgevy revenue growth and positive pipeline news clearly could send them higher.
2. Recursion Pharmaceuticals
One of the biggest problems of drug development is the time it takes to identify a quality candidate to treat a particular disease. It involves a lot of trial and error in a laboratory. Recursion Pharmaceuticals is tackling this challenge by relying on computer power.
The company's operating system stores more than 23 petabytes of biological and chemical data. From here, Recursion or other pharmaceutical clients may use this data to more quickly discover the next new drug candidate.
Recursion's tools allow researchers to understand relationships between viruses and certain small molecules, for example, or compare new drug candidates to 12 billion ready-to-use molecules. The platform also allows researchers to identify potential safety issues earlier. All this is done using the operating system, rather than using traditional equipment in a biology or chemistry lab.
Recursion's technology is a potential game-changer -- and that's why the company fits perfectly in Wood's portfolio.
But it's important to keep in mind that Recursion is also pretty high-risk, so cautious investors are better off sitting this one out. Research and development expenses are on the rise, the company's net loss has widened, and revenue growth isn't particularly compelling. And Recursion's own programs are in phase 2 studies or earlier, so product revenue isn't right around the corner.
RXRX Net Income (Annual) data by YCharts
Still, the shares have dropped more than 70% from their peak a few years ago, offering Wood and other aggressive investors a tempting buying opportunity today.
3. Toast
Toast is a cloud-based platform for restaurants (as well as similar businesses like bakeries and food trucks) that helps them do everything from processing payments to managing delivery services and payroll.
Other point of sale (POS) players offer some of these services -- for example, Block's Square POS -- but Toast is the only such system developed uniquely for restaurants. This should help Toast to more easily capture the pulse of the industry and continue to develop new features that restaurant owners need the most. That said, it's important to note that competition still remains a decent risk for Toast. In today's difficult environment, some restaurants may choose the least expensive option, and that could leave Toast on the sidelines.
So far, though, Toast has made significant progress when it comes to winning over clients and growing its business. In the most recent quarter, the company reported a 37% increase in revenue to more than $1 billion, a 50% increase in gross profit to about $226 million, and free cash flow of $37 million compared to an outflow of cash in the year-earlier period.
Importantly, Toast grew its customer base -- by 34% to 99,000 locations. And Toast is currently present in only about 10% of U.S. restaurants, so there is plenty of room to grow from here.
Trading at close to its lowest ever in relation to sales, Toast clearly attracted Cathie Wood's eye as she searched for early January bargains.
