Under most circumstances, stock picking is difficult, and that difficulty level is ratcheted higher in the disruptive technology space. That’s certainly true of genomics investing where fortunes are burned and minted on the back of clinical trial success.
That is to say that the rosters of many genomics exchange traded funds may be homes to stocks that end being hits and misses. Fortunately, the ARK Genomic Revolution ETF (ARKG) has some potential hits on its roster. Take the case of Pacific Biosciences of California (NASDAQ: PACB).
On March 31, the biotech stock surged 18.65% on volume that’s more than double the daily average, extending its 2023 gain to 41.56%. That’s good news for ARKG investors because the actively managed ETF has a 5.77% weight to the stock, making by far the largest ETF holder of the shares on a percentage basis. ARKG’s allocation to Pacific Biosciences is more than 220 basis points in excess of that of the ETF, with the next-largest weight to the shares.
That’s relevant to ARKG investors because as TD Cowen analyst Dan Brennan described it, Pacific Biosciences could be a transformational growth story in the genomics space.
“PACB is a growth transformation story under CEO [Christian] Henry where investor bias has shifted positive, though the high multiple and expectations keeps many investors away,” Brennan wrote in a Friday note to clients. “Our bullish customer survey reflects upside to placements and pull through, along with a material budget shift to long reads. Picking the right entry point can be difficult, but we think it’s time to get on board this multi-year story.”
One of the primary potential catalysts for Pacific Biosciences stock is the evolution of the company’s Revio system. Launched in 2022, Revio could eventually evolve to sequence entire human genomes.
“If PACB can drive adoption of its Revio platform (>15x more powerful on throughput) and penetrate new end markets with long-read (subsume some short-read applications), we have little doubt the system will see meaningful uptake and drive a compounding inflection in revenue growth; with further upside potential from new portfolio launches (benchtop and ultra-high throughput versions of Revio),” added Brennan.
There’s something else that could be meaningful to Pacific Biosciences stock, which is the second-largest component in ARKG. The consensus price target on the name is $12.38, implying upside of just 6.91% from the March 31 close. Couple that with the stock’s torrid run to start 2023, and it’s possible that the other seven analysts covering the name may join TD Cowen’s Brennan in boosting price targets.
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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.