Do you know what confident investors do when the stock market thrashes their favorite stocks? They take advantage of the bargain pricing and buy a lot more.
Last week was a lousy one for a handful of life science and healthcare stocks. That didn’t stop Cathie Wood, founder and CEO of ARK Invest, from adding to some of her favorite stock positions.
1. Ginkgo Bioworks
Wood was a big fan of this synthetic biology company long before a special purpose acquisition company took it public in mid-September. Several times last week, Wood increased Ark Invests’ Ginkgo Bioworks position even though the stock is under a lot of pressure.
A lengthy diatribe from a short seller recently highlighted the company’s lack of profitability and battered the stock. Ginkgo Bioworks is building a platform that should enable a variety of businesses to program living cells at will. Unfortunately, demand for such services isn’t nearly as strong as Gingko Bioworks’ investors would like it to be.
Ginkgo Bioworks is trying to solve the problem of weak demand for synthetic biology services by investing in start-ups. Instead of handing over cash, though, the company’s been giving out Gingko-bucks that businesses can only use to pay for foundry services.
Years ago, the world’s leading synthetic biology company, Amyris (NASDAQ:AMRS), realized it can’t rely on third parties for demand. Thanks to sales of its own brands in the health and beauty space, though, Amyris is finally beginning to produce a sustainable profit.
Gingko Bioworks wouldn’t be the first synthetic biology company to learn the hard way that foundry services aren’t very profitable. That’s because engineering an organism that can produce a specific ingredient is the easy part of this business. Production at a scale that makes such ventures worthwhile, though, is a challenge that Gingko Bioworks hasn’t addressed yet.
2. Signify Health
This relatively new healthcare stock has tumbled around 54% since peaking shortly after its stock market debut in February. Wood isn’t shaken, though. Ark Invest funds bought more shares of Signify Health every day last week.
Signify Health is a middleman that works with healthcare providers and healthcare benefits managers such as Anthem to keep average costs low. Signify Health’s most popular service at the moment involves in-home evaluations of patients in an attempt to reduce hospital readmissions.
Ever since the passage of the Affordable Care Act in 2010, healthcare providers are increasingly likely to receive fixed rates for specific health episodes like cataract-removal surgery or knee replacement. By keeping patients at home as much as is safely manageable, Signify Health can save insurers a bundle.
Signify Health’s approach to healthcare spending management is working out well for Signify and its clients. In the first half of 2021, the company reported adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) that reached an impressive $89 million.
3. Beam Therapeutics
This biotech stock made its market debut in early 2020, making it the oldest stock on this list. Since peaking in July, though, it’s lost around 37% of its value. Undaunted by the recent slide, Wood added shares of Beam Therapeutics to the Ark Innovation ETF (NYSEMKT:ARKK) every day last week.
Wood is interested in this company’s base editing technology. Most gene-editing techniques involve cutting a DNA strand at a specific site to remove or insert a sequence of nucleotides. Unfortunately, this method comes with a lot of risks. Beam Therapeutics employs a base-editing technique that can convert thymine to adenine or cytosine to guanine.
Beam Therapeutics’ approach should be a lot less problematic than breaking and repairing DNA strands. Demand for a safer gene-editing method is on the rise too. A string of safety scares from experimental gene therapies that break DNA, including Allogene‘s recent implosion, make it clear that a better way to edit genes is sorely needed.
Beam Therapeutics, Signify Health, and Ginkgo Bioworks made it onto Wood’s buy list early this month. Let’s see if she keeps adding to these positions as October progresses.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.