Mad Hedge Technology Letter
February 18, 2022
Fiat Lux
Featured Trade:
(AVOID ARKK)
(ARKK), (ARKG), (ARKX)
Tag Archive for: (ARKG)
With a reported net worth of a few hundred million dollars, Ark Invests CEO Cathie Wood laid an egg in her interview yesterday defending the company’s lousy recent performance.
It wasn’t so much that tech has sold off and especially growth stocks have bore the brunt of the carnage, but it was her logic behind her answers that raises more questions than answers.
Doing a deep drive into her array of ETFs, there are some headscratchers.
For example, in her ARKX Space Exploration and Innovation ETF (ARKX), why is her 5th biggest holding a Japanese construction company that specializes in making excavators Komatsu?
Her ETFs are full of these stocks that shouldn’t be there and she continues to bang on the drum about her portfolio possessing superior innovation.
Her second largest holding in this same ETF is a 3D printing ETF (PRNT) which also is illogical and has nothing to do with space exploration.
In her ARK Genomic Fund ETF (ARKG) her second largest position is Teladoc (TDOC) which provides remote doctor services through an app.
TDOC has nothing to do with genomics whatsoever.
Her flagship fund ARK Innovation ETF (ARKK) fund is down 60% in the past 365 years and it appears as if the pain is just starting, with huge drawdowns in many of her core holdings.
In the interview, she also gave some bizarre answers.
She reasoned to the viewer that the reason her team avoided Moderna (MRNA) is because the valuation is too high.
This is at the same time she completely ignores valuation for “innovation” stocks that aren’t interested in turning a profit because they are too “innovative.”
A company like TDOC has an EPS of -$5.5 and many of her key holdings are big loss makers which in the era of Central Bank hawkishness is a death knell.
Some of her other key holdings like Roku (ROKU) are down 25% just today and down 77% in the last 365 days.
TDOC is also down 77% in the last 365 days and 7% just today.
I mean for a net worth of a few hundred million dollars, surely, performance could be a little better, right?
What Cathy Wood misses completely is that being in the stock market is about the right and wrong timing which she behaves like it doesn’t exist because her time horizon is forever.
She likes to say “innovation is on sale,” but I would argue, quality is on sale and readers should migrate to higher ground to the likes of Amazon, Google, Apple, and Microsoft.
Wood's response was that other people “aren’t doing the research” which I find to be a ridiculous claim in itself.
In another absolute shocker, she played down inflation as something that has been more or less contained and will work itself through.
Then she highlighted all the “deflationary forces” as the reasons why inflation will be tamed which seems highly unlikely.
She plain out avoided many of the hard questions because she simply had no good response.
She stuck with the marketing pamphlet as if that was all she knew.
Wood also completely ignored anything related to tactical and active portfolio management and her plan is pretty much to stick with what she has even if there are 99% selloffs or drastic shifts in market conditions.
ROKU and TDOC are down 77% and she repeats the same general phrases as if we are in a bull market.
Readers wants to know what the next step is and how to strategically navigate through this bout of high volatility.
To shame the market and blame others on not “doing the research” is quite tone deaf and I could never recommend Cathy Wood and her ARKK fund to anyone.
To give her credit, she got the Tesla (TSLA) call spot on and crushed that one, but the real stock market people know that this industry is a what have you done for me lately industry and only when the tide goes out, we see who’s swimming naked.
Mad Hedge Biotech & Healthcare Letter
September 14, 2021
Fiat Lux
FEATURED TRADE:
(IS THIS THE BIGGEST WINNER IN A WINNER-TAKE-MOST MARKET?)
(NVTA), (ARKK), (ARKG), (SFTBY), (AMZN), (EXAS), (AAPL), (MSFT)
One of the most underappreciated names in the biotechnology sector might just be the biggest winner in a winner-take-most market today: Invitae (NVTA).
Despite being at the receiving end of a seemingly endless flogging since the year started, Invitae remains an attractive stock for the likes of Cathie Woods.
In fact, this San Francisco-based company is one of the Top 20 holdings of ARK Innovation (ARKK) and ARK Genomic Revolution (ARKG).
Described by Woods as "probably one of the most important companies in the genomic revolution," Invitae is the sixth-largest holding of the ARK Investment portfolio with more than $1 billion worth of exposure.
Aside from ARK, Invitae also recently attracted the attention of Japanese tech conglomerate SoftBank (SFTBY), which came in the form of $1.2 billion worth of convertible bond investment.
Amid all these, why is Invitae still under-appreciated?
First, it’s essential to understand that biotech companies opt to target particular niches where they aim to maintain high prices and maximize profitability for as long as possible.
That way, they can maintain and continue to boost their profits.
This results in highly prohibitive costs in the healthcare innovation section, which in turn cause rationing of cases because only a select group of patients can actually afford the exorbitant fees for the innovative drug or therapy.
While rationing care and maximizing profits are obviously great for investors, this makes the innovations inaccessible to people who could not shell out the cash to take the tests or treatments.
This is where Invitae comes in.
Basically, Invitae is taking a completely different approach compared to its peers in the biotechnology world.
According to the company, its mission is "to bring comprehensive genetic information into mainstream medicine to improve healthcare for billions of people."
How will Invitae achieve this?
Instead of choosing a single genetic variant to test, which costs over $1,000 each, the company is developing a testing platform that can identify thousands of genetic variants.
The clincher? This will only cost less than $250 for the entire test panel.
This nonconforming approach to biotechnological innovations is what has primarily led to Invitae’s under-appreciation.
However, Invitae’s mission holds incredible potential.
What it means in medical terms is that the company can help about 1 in 6 people suffering from a medical condition with an inherent genetic factor.
What it means in financial terms is that the company holds the possibility of generating several hundred dollars per year from over 2 billion people—a jaw-dropping market opportunity worth $4 trillion.
One of Invitae’s key ideas is to grant people access to their genetic information and then interpret it for them.
To me, this indicates the company’s goal of doing for genetics what Amazon (AMZN) has done for book buyers.
The next question is this: Can Invitae truly accomplish this?
Let’s consider the company’s growth trajectory along with the catalysts ahead.
So far, three catalysts can push the company towards its goals.
First is the steady growth in testing volume. As with most medical procedures, the volume of genetic testing went down during the COVID-19 pandemic. However, this is now rebounding gradually.
In the first quarter of 2021, the billable volume went up by 72% year over year, with roughly 259,000 tests in that quarter alone.
Traditionally, genetic testing is generally driven by orders from doctors and the cooperation of health plans to cover the tests.
Moving forward, we expect pharmaceutical firms to play more significant roles in promoting and even paying for these tests.
Approximately 90% of the pharma pipelines these days are based on genetic conditions.
As these new and innovative genetic treatments gain FDA approval, the pharma companies would have additional vested interest in ensuring eligible patients receive testing. That way, they can drive demand for the therapies they developed.
The second catalyst comprises the oncology sector.
Genetic testing has become the trend, particularly for cancer—an undoubtedly massive and financially lucrative market.
To leverage this growth, Invitae acquired ArcherDX in 2020 in an effort to expand its offerings.
With this purchase, the company can help major cancer centers implement their testing systems while also offering support to healthcare providers who opt not to do their own testing.
The availability of these comprehensive services will serve as critical drivers of income and profitability considering the historically proven high reimbursement rates in the oncology testing segment.
Apart from this, Invitae recently announced its decision to acquire Ciitizen, a consumer health tech firm, for $325 million.
This move will allow Invitae to expand its patient database through the genomic and clinical information gathered from Ciitizen’s platform.
Thus far, Invitae has announced 13 acquisitions over the past 5 years.
The third catalyst is the continuous global growth of Invitae.
Evidently, the mission of reaching 2 billion people requires worldwide expansion—something that the company has been working on.
In fact, roughly 18% of the total billable volume of Invitae in the first quarter came from international transactions, which have the potential to grow faster than their business in the US.
To date, Invitae has been expanding its operations in Japan, Israel, Europe, and Australia.
Meanwhile, Invitae’s incredible potential has attracted other companies as well. Exact Sciences (EXAS) has been linked to the company for a potential merger among the firms interested.
Admittedly, Invitae’s mission to offer affordable and accessible genetic testing to 2 billion people will require many more years before it comes to fruition.
When that day comes, the company will join Apple (APPL), Amazon, and Microsoft (MSFT) as part of an elite group with $1 trillion and over market cap.
The long wait for Invitae to achieve this ambitious goal would be worth it for patient buy-and-hold investors.
