Tech

Cathie Wood Takes These 2 Stocks Below $10

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On Wednesday, the Fed raised rates again, the third 75 basis point hike since June, and indicated two more such hikes could follow by the end of this year. The conventional wisdom is that the Fed is acting appropriately and aggressively in an effort to curb inflation raging at 40-year highs. But conventional wisdom isn’t always right – and we can learn a lot from consulting the opponents.

Few top investors are more contrarian than Cathie Wood. The founder and manager of ARK Invest has a reputation for going all-in in high-risk, high-potential sectors with a focus on disruptive technologies. Its strategy built ARK Invest into a $60 billion behemoth, but some of its flagship funds have underperformed in recent months.

Lately, Wood has created some waves by predicting a deflationary wave on the way, rather than raising inflation. Pointing to falling commodity prices, she notes, “Even the oil price has fallen more than 35% from its peak, wiping out most of this year’s gains.”

Wood also notes some key historical differences between current conditions and the last run of high inflation in the 1970s and early 1980s, saying, “The Fed appears to be responding {sic]COVID-related supply shocks for 15 months in the same way Volcker fought inflation that had been brewing and building for 15 years. I wouldn’t be surprised if there is a major policy change in the next three to six months.”

In the meantime, let’s see where Wood is doubling down on her own investments. She “buys the dip” this month, picking up stocks that have seen a sharp drop in share price and are now selling for less than $10 a share.

The habits TipRanks Database, we looked up the details on two of her recent major purchases. Here they are, along with commentary from the street analysts.

Ginkgo Bioworks Holdings (DNA)

We start with Ginkgo Bioworks, an interesting company in the biotech sector. This company is engaged in the creation of designer microorganisms, i.e. living cells that can be used in a variety of applications in science and industry. The company develops its cell lines through a proprietary platform and process, which includes machine learning, biodiversity, DNA synthesis, organic fermentation, and software and automation. Ginkgo has built a reputation as the go-to company for researchers seeking high-performance cell technology.

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Ginkgo went public through a SPAC transaction last September – it entered public markets on the 17th of the month – and its stock has fallen 76% since then. Over the past year, the company has posted net losses in each quarter, although revenues have consistently exceeded forecasts. The most recent financial release, for 2Q22, showed an operating loss of $647 million, a much larger loss than the $60 million a year ago. At the same time, revenues grew strongly year-over-year, up 231% from $44 million to $145 million.

For investors, the most important part of the company’s release was forward guidance. Ginkgo expects to reach 60 new cell programs in its foundry platform this year, a major draw for its customer base. The company is targeting annual revenues of $425 million to $440 million, up from previous expectations of 13% in the middle.

All this caught the attention of Cathie Wood. She purchased Ginkgo through two of her investment funds, ARK Innovation and ARK Genomic. In the first, she owns a total of 78.882 million shares of DNA, up from 5.26 million shares this month. In the latter case, Wood added 3.57 million shares this month, bringing its holdings to 27.439 million shares. In all, Wood’s stake in Ginkgo totals more than 106 million shares, valued at over $305 million at current valuations.

Wood is not the only bull in these stocks. BTIG analyst Mark Massaro also takes a bullish stance based on its view of the company’s future prospects.

“Looking at 2H/22, management noted that Foundry services revenue is likely to remain flat, although projected milestone payments are expected to occur in 2H’22 for Ginkgo to meet or exceed its 2022 Foundry guidelines. Ginkgo helps its customers harness biology and grow products that may be superior in quality, less expensive and more durable than the products in use today, which we believe will enable new nucleic acid vaccines, cell and gene therapies, and will include new antibiotics.” Massaro wrote.

“We believe that Ginkgo’s business model, which consists of its Foundry and downstream value share, is healthy and positioned to capture a wide range of businesses,” Massaro summed up.

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Converting these comments into numbers, Massaro gives DNA stock a price target of $6, suggesting a 113% year-on-year increase for the stock. He assesses the shares as a buy. (To view Massaro’s track record, click here)

Other analysts do not disagree. With 4 Buy ratings and no Holds or Sells, the word on the street is that DNA is a strong buy. The average price target of $10.83 is more aggressive than Massaro’s and implies upside potential of 285% from the current share price of $2.81. (See DNA stock prediction on TipRanks)

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TuSimple Holdings (TSP)

The second stock we’ll be looking at is TuSimple Holdings, a company working on autonomous vehicles in the long-haul transportation industry. The goal of TuSimple is to combine AI-powered self-driving systems with long-haul freight transport to create truly autonomous freight transport – and to solve efficiency, range and safety issues in the industry.

Although TuSimple’s technology is not yet in commercial use, the company has established an autonomous freight network (AFN) in the southern US, from Arizona to Florida. The company is basing its network on strategically placed hubs and a growing digital map and is currently working on its Driver Out testing activities. A major milestone was that last December, TuSimple was able to drive a semi-truck completely autonomously, with no human crew on board, on public roads.

In its Q2 22 financial report, TuSimple reported a net loss of 49 cents per share — the sixth such loss in a row since its IPO. On the plus side, TuSimple’s losses have decreased over time; the year ago, the loss was 64 cents per share.

One point vital for investors to consider is that TuSimple has been involved in a major security investigation — including a lawsuit and government oversight — following an April crash. A truck, testing the autonomous driving system on the road, but with a human backup crew, unexpectedly veered left and crashed into a concrete lane divider on I-10 in Tucson. The human crew was able to take control and avoid damage to other people or vehicles. TuSimple has attributed the accident to human error, but questions remain and are being investigated.

However, the accident didn’t stop Wood from increasing her property. In recent weeks, Wood has bought some 765,000 shares of TSP through its ARK Innovation Fund, which now owns more than 10.8 million shares of the company. Overall, her fund is in stock at $73 million.

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Ravi Shankera Morgan Stanley tech industry analyst, has also been tracking this stock since its IPO last year — and in his latest note, he was encouraged by management’s handling of the recent accident.

“We remain confident that TSP’s LT story and leadership position remain on track. We are encouraged by the way the mgmt is handling the security incident and based on our understanding of what happened, we are confident this will not escalate into a significant obstacle in their path to commercial adoption. We are also very encouraged by the improved cost and cash burn and ending FY22 with $950mm of cash, which at the current ~$75-80mm/qtr cash burn run TSP will provide several quarters/years of liquidity after 2022 and can bridge to the beginning of commercial production,” wrote Shanker.

To that end, Shanker gives an Overweight (ie Buy) rating to TuSimple stock, and its price target, set at $35, implies an impressive 392% gain over one year. (To view Shanker’s track record, click here)

While Shanker – and Wood – are very optimistic about this stock, Wall Street is generally more divided. The bulls are slightly ahead, with 3 buys compared to 2 holds received in the last three months. Still, the average price target of $15.19 suggests an increase of about 125% per year from the current trading price of $6.76. (Check out TSP’s stock forecast on TipRanks)

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Disclaimer: The opinions expressed in this article are those of the recommended analysts only. The content is for informational purposes only. It is very important to do your own analysis before making any investment.

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