Cathie Wood hits these 2 stocks under $10

On Wednesday, the Fed hit interest rates again, its third 75-basis point hike since June, and signaled two such hikes could happen by the end of this year. Because of the conventional wisdom, the Fed is acting correctly, and aggressively, in an effort to combat inflation raging at 40-year high levels. But conventional wisdom isn’t always right – and we can learn a lot by consulting the contrarians.

Few top investors are more contrarian than Cathie Wood. The founder and manager of ARK Invest is known for comprehensively entering high-risk, high-potential sectors with a focus on disruptive technologies. His strategy built ARK Invest into a $60 billion giant – but some of his flagship funds have underperformed in recent months.

Recently, Wood has made some waves by predicting a wave of deflation on the way, rather than increasing inflation. She points to falling commodity prices, and notes, “Even the price of oil has fallen more than 35% from its peak, wiping out most of the gains this year.”

Wood also notes some important historical dissimilarities between current conditions and the last run of high inflation in the 70s and early 80s, saying, “The Fed appears to be responding {sic]with 15-month-long COVID-related supply shocks in the same way that Volcker tackled inflation that had been pushing and building for 15 years. I would not be surprised to see a significant policy pivot in the next three to six months.”

In the meantime, we’ll see where Wood doubles down on her own investments. She has been ‘buying the dip’ this month, picking up stocks that have fallen sharply in share price and are now selling for less than $10 a share.

Using the TipRanks database, the details of two of her recent big purchases have been pulled up. Here they are, along with commentary from Street analysts.

Ginkgo Bioworks Holdings (DNA)

We will start with Ginkgo Bioworks, an interesting company in the biotechnology sector. This firm is in the process of creating designer microorganisms – that is, living cells that can be used in a variety of applications in science and industry. The company engineers its cell lines through a proprietary platform and process, which includes machine learning, biodiversity, DNA synthesis, organic fermentation, and software and automation. Ginkgo has earned a reputation as a ‘go-to’ company for researchers seeking high quality cell technology.

Ginkgo went public through a SPAC transaction last September—it entered the public markets on the 17th of the month—and since then, the stock has fallen 76%. Over the past year, the company has had net job losses in every quarter, even though revenue has consistently beaten forecasts. The most recent financial release, for 2Q22, showed a loss from operations of $647 million, a much deeper loss than $60 million in the year-ago quarter. At the same time, revenue increased strongly year over year, 231% from $44 million to $145 million.

For investors, the important part of the company’s release was the forward guidance. Ginkgo expects to achieve 60 new cell programs in its foundry platform this year, a key draw for its customer base. The company is guiding for full-year revenue of $425 million to $440 million, an increase from previous guidance of 13% at the midpoint.

All this caught Cathie Wood’s eye. She bought into Ginkgo through two of her investment funds, ARK Innovation and ARK Genomic. In the first, it has a total of 78.882 million DNA shares, an increase of 5.26 million shares this month. In the latter, Wood added 3.57 million shares this month, to bring his holdings to 27.439 million shares. In total, Wood’s stake in Ginkgo is over 106 million shares, worth over $305 million at current valuations.

Wood is hardly the only bull on this stock. BTIG analyst Mark Massaro also takes a bullish stance, based on his view of the company’s prospects going forward.

“Looking ahead to 2H/22, management noted that revenue from Foundry services is likely to remain flat, although expected milestone payments in 2H’22 are expected to increase to enable Ginkgo to meet its 2022 Foundry guidance to strike or strike. Ginkgo helps its customers take advantage of biology and grow products that may be better in quality, cheaper and more sustainable than those used today, and we think they will include new vaccines for “nucleic acid, cell and gene therapies, and novel antibiotics over time.” Massaro wrote.

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

Putting these comments into numbers, Massaro gives DNA shares a $6 price target, implying a 113% year-to-date upside for the stock. He rates the shares as a Buy. (To view Massaro’s track record, Click here)

Other analysts beg to differ. With 4 Buy ratings and no Holds or Sells, the word on the Street is that DNA is a Strong Buy. The average price of $10.83 is more aggressive than Massaro’s target and suggests a potential 285% upside to the current share price of $2.81. (See DNA stock forecast on TipRanks)

TuSimple Holdings (TSP)

The second stock we’ll look at is TuSimple Holdings, a company that works on autonomous vehicles in the long-haul transportation industry. TuSimple’s goal is to marry AI-powered self-driving systems with long-haul freight transportation, creating truly autonomous pollution—and solving 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 has based its network on strategically located hubs and an expanding digital map, and is currently working on its Driver Out testing operations. As an important milestone, last December TuSimple was able to drive a semi-truck in fully autonomous mode, without a human crew on board, on open public roads.

In its 2Q22 financial report, TuSimple reported a net loss of 49 cents per share – its sixth consecutive loss since going public. On a positive note, TuSimple’s losses are easing over time; The loss a year ago was 64 cents per share.

In one key point for investors to consider, TuSimple was embroiled in a major safety investigation – including a lawsuit and government oversight – stemming from a crash in April. A truck, testing the autonomous driving system on the road but with a human backup crew, unexpectedly veered left and hit a concrete lane divider on I-10 in Tucson. The human crew was able to take control and avoid damaging any other people or vehicles. TuSimple blamed the crash on human error, but questions remain – and are being investigated.

The accident, however, did not deter Wood from increasing his holdings. Over the past few weeks, Wood has bought about 765,000 shares of CTA through his ARK Innovation fund, which now holds over 10.8 million shares in the company. Overall, her fund is into the stock for $73 million.

Ravi Shanker, a technology sector analyst from Morgan Stanley, has been following this stock since its IPO last year – and in his latest note, he was encouraged by how management is dealing with the recent crash.

“We remain confident that the story of LT and the leadership position of the TSP is still on the right track. We are pleased with mgmt’s handling of the safety incident and based on our understanding of what happened, we are confident that this will not be a significant obstacle on their way to commercial acceptance. We are also very encouraged by the improved cost and cash flow and ending FY22 with $950 mm of cash which will give TSP several quarters/years of liquidity at the current rate of ~$75-80 mm/qtr of liquidity for TSP after 2022 and can be filled in. began commercial production,” Shanker wrote.

To that end, Shanker rates TuSimple shares as Overweight (ie, Buy), and his price target, set at $35, implies a significant one-year gain of 392%. (To view Shanker’s track record, Click here)

While Shanker – and Wood – are very supportive of this stock, Wall Street is generally more divided. The bulls come in slightly ahead, with 3 Buys compared to 2 Holdings acquired in the previous three months. However, the average price of $15.19 indicates ~125% one year upside from the current trading price of $6.76. (See TSP stock forecast on TipRanks)

For great ideas on trading stocks at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unifies all of TipRanks’ equity insights.

Denial: The views expressed in this article are solely those of the analysts in question. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.

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