Healthcare innovators, including genomics companies, are rarely inexpensive in equity market terms. Often, rich multiples are simply the cost of admission that investors have to pay to access a high-growth parts of the healthcare sector.
However, there are times when some biotechnology and genomics stocks go on sale, confirming to investors that there are occasional values to be had in what’s typically considered a growth segment of the market.
While it’s a not a value fund in the typical sense, the ARK Genomic Revolution Multi-Sector Fund (CBOE: ARKG) is home to some stocks that currently offer attractive valuations — a rarity in the genomics space.
Barron’s recently ran a screen for biotech stocks “with a market cap of over $5 billion that trade the farthest below their average analyst target prices as calculated by FactSet,” reports Josh Nathan-Kazis for the financial journal. “The four stocks that passed the screen—Fate Therapeutics (FATE), CRISPR Therapeutics (CRPS), Denali Therapeutics (DNLI), and Ultragenyx Pharmaceutical (RARE)—are developing some of the most cutting-edge technologies in biotech, and have garnered substantial excitement. Analysts see reasons for all four to gain.”
Fate Therapeutics is the sixth-largest member of the ARKG roster at a weight of 3.79%, as of Nov. 17. The company is a clinical-stage firm focusing on cancer treatments — often a hot corner of the biotechnology arena.
Fate “has seen its shares drop 39.5% this year. Its average analyst target price is $105.63, according to FactSet, implying a 99.2% gain over its recent price of $53.03,” according to Barron’s.
CRISPR Therapeutics is another ARKG member firm that made the Barron’s screen. That stock commands 2.72% of the fund’s weight. CRISPR specializes in gene editing therapy, a cutting-edge concept that ARKG features more exposure to than some competing funds. The stock is down 43.7% year-to-date and resides 84.5% below the consensus price target.
“At a $7 billion valuation [with] no products yet approved, we have to acknowledge that it is STILL a highly valued stock,” Evercore ISI analyst Liisa Bayko wrote in a note to clients earlier this month. “Still, with multiple programs entering the clinic, the potential upside is substantial. “If [proof of concept] works, this could open a floodgate of opportunities. We’re excited.”
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.