Stock picker and hedge manager Cathie Wood made some serious waves last year, when her ARK Innovation ETF outperformed the S&P 500 by an order of magnitude. From the pandemic trough in March to the end of 2020, the S&P gained 68%, while Wood’s flagship fund surged ahead by 153%. It was an astounding performance.
Wood made smart choices last year, targeting tech companies, remote connections, and telehealth for investment. All of those segments saw big gains in business during the lockdown phases of the pandemic response, but have slipped back as we’ve shifted more toward ‘normal.’
Looking ahead, as 2021 fades into 2022, and the ongoing corona crisis continues to evolve, Wood is focusing more and more on innovation. “Our primary message is that innovation solves problems and is expected to transform human lives at an accelerated rate during the next five to ten years,” she says – outlining the basic case for buying into the innovators, and making a prescription for stock investing as a long-term proposition.
“After correcting for nearly 11 months, innovation stocks seem to have entered deep value territory, their valuations a fraction of peak levels,” Wood added.
With this in mind, we wanted to take a closer look at three innovation stocks that Wood’s ARK Investment Management picked up recently. Running the tickers through TipRanks’ database, we learned that each one boasts a “Strong Buy” consensus rating from the analyst community. In fact, the analysts see these stocks gaining 60% or better in the year ahead, a return that would definitely point ARK in the right direction.
TuSimple Holdings (TSP)
The first ‘Wood-pick’ we’ll look at is TuSimple, an AI company neck-deep in the autonomous vehicle niche. TuSimple is developing technology optimized for autonomous trucking, and important segment in the future automotive industry. Autonomous trucking promises greater efficiencies and improved safety for long-haul routes, and TuSimple is working on AI tech to meet those needs. The company’s chief product, under development, is a LiDAR sensor system to allow perception in all weathers up to 1000 meters from the vehicle.
TuSimple went public earlier this year, one of many companies that took advantage of the market’s general upward trend to raise capital. The IPO brought in over $1.08 billion in gross capital. While the stock has been volatile since then, TSP still boasts a market cap exceeding $6.9 billion.
Last month, the company released its 3Q21 earnings, its third such report as a public company. While it does not yet have a regular revenue stream based on a production-level platform, the company did report meeting some important milestones. It expanded a partnership with the delivery company UPS, and reported logging over 160,000 cumulative autonomous miles in test vehicles. The program with UPS also generated a 13% savings in fuel costs. In addition, TuSimple has mapped out new autonomous trucking lanes to Orlando, Florida and Charlotte, North Carolina.
Earlier this month, the company announced a similar partnership with DHL, another major delivery company. The DHL collaboration will integrate TuSimple’s autonomous trucking tech into DHL’s operations. DHL has reserved 100 trucks for conversion to autonomous driving.
Cathie Wood first bought into TSP in 2Q21; in her fund’s most recent 13F filing, we see that she increased her holdings by 3,841,493 shares. This was a 60% increase, and brings her current stake in TSP to 10,314,228. At current valuations, this holding is worth $335 million.
Going forward, TSP is preparing its ‘Driver Out’ safety validation tests, a key milestone in developing a fully autonomous truck system. This is the key catalyst ahead for the company, in the view of Morgan Stanley’s Ravi Shanker.
“We continue to see TSP as the clear leader in the small group of autonomous trucking players and believe they can tap into the ~$1 tn trucking TAM in the US with high margins once commercial production begins in 2024. We continue to see extremely wide but positively skewed risk-reward here likely hinging around that the outcome of the Driver Out test in the next few weeks,” Shanker opined.
Shanker reminds investors that there are considerable gains in store for TSP in 2022. The analyst rates the stock an Overweight (i.e. Buy), and his $75 price target implies an upside of 130% on the one-year time horizon. (To watch Shanker’s track record, click here)
It’s clear that Wall Street is in broad agreement with the Morgan Stanley view; the reviews on this stock break down 5 to 1 in favor of Buys over Holds, for a Strong Buy consensus rating. Shares are priced at $32.48 and the $58.85 average target suggests a 12-month upside of 81%. (See TSP stock analysis on TipRanks)
Next up, PagerDuty, offers a cloud-based incident response platform for IT departments. In short, PagerDuty’s product gives IT managers and supervisors real-time access to critical apps and services, bringing a wide range of data signals into one easy to see platform. The company uses machine learning to interpret signals, accelerate resolution, and engage the right people for the best response.
All of this adds up to big business for the San Fran-based tech company. PagerDuty boasts a $2.9 billion market cap, and has seen revenues rise in every quarter for the past two years. In the most recent quarterly report, for fiscal 3Q22, the company reported $71.76 million at the top line, up 6% sequentially and 33% year-over-year. At the bottom line, earnings have been volatile this year – but the Q3 print, a loss of 7 cents per share, was better than the 13-cent loss from Q2 and the 9-cent loss in the year-ago quarter.
Cathie Wood bought up 1,403,361 shares of PD in the last quarter, which added 17% to her existing holding and gave her a total of 9,996,968 shares in the company. This is a major stake, and makes Wood an 11% owner in the company. Her holding is worth almost $344.8 million.
Wood is not the only one impressed by this stock. Writing from Baird, analyst Rob Oliver says: “Company is seeing continued expansion beyond core-IT. We continue to view PD as a compelling play on the enterprise digitization. We view current valuation of 8.5x FY23 as attractive relative to growth and market position. We believe improved execution, strengthening fundamentals, and an overall improving macro should drive a higher valuation for this leader in calendar 2022.”
Oliver’s comments back his Outperform (i.e. Buy) rating, while his $60 price target indicates room for a 73% upside by the end of next year. (To watch Oliver’s track record, click here)
This stock has caught the eyes of 8 Wall Street analysts recently, and their reviews include 7 Buys against 1 Hold, for that Strong Buy consensus. PD is selling for $34.49 and its $57.64 average price target implies a one-year upside potential of 67%. (See PD stock analysis on TipRanks)
Fate Therapeutics (FATE)
We’ll round out our list with Fate therapeutics, a clinical-stage biopharma company working on programmed cellular immunotherapies for the treatment of various cancers and immune disorders. The company bases its development program on a novel approach using ex vivo cell programming, applied to modulate therapeutic function and direct the growth and fate of hematopoietic cells.
The novel approach uses human induced pluripotent stem cells (iPSC) to create a precisely engineered immunotherapy with unlimited production of cells – and not depended on the patient as a source for initial cells. The result is reliable, homogenous product forms to attack specific cancers and disease conditions.
Fate’s pipeline features six drug candidates undergoing Phase 1 clinical trials, mostly for a variety of non-Hodgkin lymphomas, and four more programs in preclinical testing. The two leading clinical candidates have both recently showed positive interim data.
For the study on FT596, a potential treatment for R/R lymphoma, the company in Q3 released data on 14 patients in a single dose escalation. Cohorts 2 and 3 showed 71% overall response rate and 50% clinical response rate. In the study of FT516, for the same condition, ORR was 73% and CR was 55%, based on 11 patients in a multi-dose, multi-cycle escalation.
More recently, Fate has released more detailed data on both drug candidates. Looking at two cohorts from the FT596 trial, 5 of 6 patients showed an objective response, including 4 who showed a complete response. At a lower dose, 13 of 19 patients achieved objective responses. All doses were well tolerated, without toxicity.
The detailed data from the FT516 trial, two cohorts showed positive results in 6 of 10 patients and 3 of 8 patients, respectively. The treatment, an outpatient regime, was well-tolerated without adverse effects.
It’s clear that Wood liked what she saw in FATE – her firm bought 3,419,156 shares in the company in Q3. This was an increase of 46%, and makes her total holding 10,902,258 shares now worth over $640 million. She first bought into this stock in 2Q19, and owns 11% of the company.
In coverage for Leerink, analyst Daina Graybosch takes a bullish position after the recent interim data releases. She writes: “We are more confident in Fate’s non-Hodgkin lymphoma (NHL) programs after reviewing updated data presented at the American Society of Hematology (ASH) meeting and in a parallel investor meeting. Though the data are still early in follow-up and patient numbers are small, particularly in aggressive NHL, we were encouraged by several clinical and translational updates. The lackluster stock response was surprising to us and we believe we could see upward movement as investors further consider the data and/or Fate confirms the signal in more patients in 2022.”
It should be unsurprising, then, that Graybosch rates FATE an Outperform (i.e. Buy). Not to mention, her $115 price target puts the upside potential at ~96%. (To watch Graybosch’s track record, click here)
Once again, we’re looking at a stock with a Strong Buy consensus rating. FATE has 12 reviews on record, including 9 Buys and 3 Holds. The shares are priced at $58.76 with an average price target of $98.40, for an upside potential of ~67% in 2022. (See FATE stock analysis on TipRanks)