Most people who followed the stock market last year know the name Cathie Wood. The founder of asset management company ARK Invest explored her strategy of investing in cutting-edge technology companies, and her notable media appearances, in one place as one of the most followed money managers today. She drew attention: all ARK funds more than doubled their investors’ money last year.
Despite its general successes, however, its funds have some stocks that have fallen out of favor with Wall Street. CRISPR Therapy (NASDAQ: CRSP) and Proto Labs (NYSE: PRLB) have dropped significantly from recent highs. For investors looking to profit from the gene editing or additive manufacturing revolutions, these declines could mean an opportunity. And those who buy any of the shares can feel safe in the knowledge that one of the biggest investors in the world has also done so.
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1. CRISPR therapy
CRISPR Therapeutics uses the CRISPR-Cas9 gene editing technique to develop transformative treatments. Although the company is making progress in its clinical programs, the stock has dropped nearly 40% from the peak reached in mid-January. CRISPR is developing treatments in three clinical areas. Management expects progress on these programs to boost its market capitalization from about $ 10 billion today to $ 20 billion to $ 25 billion in the short term.
The first program consists of hemoglobinopathies, or hereditary diseases that affect red blood cells. In the first clinical trials of CRISPR gene editing by a US company, CRISPR Therapeutics and partner Vertex Pharmaceutical (NASDAQ: VRTX) announced in December that treatment with CTX001 had effectively cured 10 patients with two blood disorders. The study is just a phase 1/2 trial and the administration expects to finish enrolling participants later this year.
Its second set of programs are immuno-cancer treatments that harness the power of the body’s own immune system to fight cancer. All three of the company’s drug candidates in this area leverage cells edited by genes transplanted from a healthy donor. Each is scheduled for a reading this year. One treatment has already shown that a modified cell in the patient’s immune system can provide a very high response rate for one of the worst forms of non-Hodgkin’s lymphoma.
Finally, the company is partnering with ViaCyte in its first effort in regenerative medicine. The pair is starting a phase 1/2 test combining ViaCyte’s stem cell capabilities with CRISPR’s gene editing experience. The result is expected to be a new way of treating diabetes. The approach actually replicates a study from two decades ago that used fresh pancreatic cells from cadavers. If this treatment proves to be effective, the stock should gain ground quickly to reflect CRISPR’s opportunity to disrupt the $ 28 billion human insulin market. Overall, the scientific advances coming from this company should make investors excited about the future.
2. Proto Labs
The manufacture of any new product has always required a lot of time and money. The equipment, molds and machines needed to produce a new project are the same, whether the company is manufacturing one part or producing thousands. For this reason, manufacturing innovations have always tended to focus on mass-produced parts more efficiently, rather than adapting quickly to new designs.
Proto Labs has turned this model upside down, building an entire business around delivering custom parts at unprecedented speeds. The platform served more than 18,000 individual product designers last year.
The approach was made easier by the adoption of 3D printing, in which components are created by building material to form a design, instead of starting with a lot of material and removing much of it. It is a cheaper and faster method. As an example, the company was able to manufacture new components for ventilators and diagnostic equipment with industry-leading response times during the pandemic.
Although Proto Labs is well positioned, its growth has been weak. Management recently reported the full year’s results for 2020, and its revenue of $ 434 million was 6% below the number for 2019. This decline was not only due to COVID-19. Revenue in 2019 was just 3% above 2018. The market is getting impatient, but the company’s new CEO, Rob Bodor, expects a more user-friendly interface and an expansion of its offerings to customers to boost sales.
The updated user platform, known as Proto Labs 2.0, was launched in November for Europe and in February for the Americas. Bodor, who took over this month, said that new features and capabilities will continue to appear throughout 2021. Proto Labs also recently acquired 3D Hubs, which will give the company the ability to identify manufacturing partners for jobs it cannot accept, as well how to provide more delivery times and price ranges for customers with different needs.
Proto Labs’ shares rose after the acquisition, a positive note from the analyst and a bullish orientation from the 3D printing company ExOne (NASDAQ: XONE). Unfortunately for shareholders, it has fallen by almost 50% since the peak reached in late January. Management hasn’t done much to help, projecting that conditions in the first quarter would be very similar to those in 2020 and 2019.
It is understandable that shareholders become impatient – this stock has been traded mainly on potential for years. However, for investors with long-term time horizons, participation in Proto Labs may one day be worthwhile. At least, that’s what Cathie Wood is counting on.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Questioning an investment thesis – even our own – helps all of us to think critically about investing and making decisions that help us become smarter, happier and wealthier.