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There’s a lot to smile about for growth stock investors these days. With the Federal Reserve widely expected to cut interest rates this year, optimism for stocks related to innovative businesses has surged.
Lower cost of capital is a strong tailwind for growth stocks. Due to lower interest rates, the future cash flows generated by the underlying business now appear to be much more valuable.
Of course, not all growth stocks are positioned to provide investors with long-term returns. But the two I’m going to talk about here stand out in terms of exciting investment banking analysts who are watching them closely. The target consensus prices for these stocks suggest that your money could double or even triple over the next 12 months.
Ginkgo Bioworks
Shortly after its market debut in 2021, Ginkgo Bioworks (NYSE:DNA) It boasted a market capitalization of $24 billion. Its market value has now plummeted to just $2.7 billion, but Wall Street analysts are hoping for a rebound. The stock’s consensus price target suggests an impressive 140% return over the next 12 months.
Ginkgo Bioworks is a world-leading synthetic biology company. In short, we generate new strains of microorganisms with valuable properties not found in nature. For example, the U.S. Department of Energy recently hired Ginkgo to develop new pest-resistant strains of algae that can be used to produce biofuels.
Ginkgo’s foundry business added 21 new cell programs in the third quarter of 2023. Unfortunately, Cell Engineering’s revenue for the quarter was just $37 million, not enough to break even. The company lost a staggering $686 million in the first nine months of 2023.
Since customers have little to lose, Ginkgo can launch a number of foundry programs. The company structures its contracts to focus on downstream revenue in the form of milestone payments and royalties on related sales.
Starting a new cell engineering program is much easier than getting a client to hit a milestone. Ginkgo is 15 years old, but its downstream sales for the first nine months of 2023 are still disappointing at just $4 million.
To Ginko’s credit, the company also has a diagnostics business and became a leading provider of infectious disease monitoring early in the COVID-19 pandemic. However, this doesn’t make the stock price very attractive. The first thing to know about the diagnostics industry is that it’s extremely competitive. It seems too much to expect a company initially focused on synthetic biology to become a reliably profitable provider of infectious disease testing.
If Ginkgo’s business is generating profits, or at least approaching profits, then this stock would make sense for most growth-oriented investors to buy. However, until the outflow of funds stops, it is only suitable for people on the edge of their risk tolerance.
interior therapeutics
interior therapeutics (NASDAQ:NTLA) is a pre-commercial developer of CRISPR-based gene therapy. Largest peer share, CRISPR Therapeuticswhich rose in November after the FDA approved its first treatment, but Interior’s stock has not followed suit despite recent advances in the pipeline.
Interior’s stock price has fallen about 39% in the past six months, but Wall Street analysts believe it could recover. The stock’s average price target implies an upside of 202% over the next 12 months.
Analysts are excited about Intellia’s differentiated pipeline. CRISPR Therapeutics’ first drug, Casgevy, is a gene therapy for the hemoglobin-related diseases sickle cell disease and beta-thalassemia. Intellia’s lead candidate, NTLA-2001, is an experimental treatment for transthyretin amyloidosis (ATTR). An estimated 200,000 to 500,000 people suffer from this progressive and fatal condition.
Interior is also trying to differentiate itself from candidates that edit genes in the body. Treatment with Kasugebi involves removing the stem cells, modifying them outside the body, and reinjecting them. In November, the company showed that his NTLA-2001 produces durable responses. Of the 29 patients with at least 1 year of follow-up after a single dose, all had durable responses.
Future revenues from NTLA-2001 could be significant. pfizer sells a daily capsule for ATTR called Vindaquel, which had sales of $2.4 billion in the first nine months of 2023. But before you get too confident in predicting future sales, you should know that selling treatments once used is difficult. You can fight even without easy-to-swallow capsules.
Intellia’s recent prices give it a market cap of $2.2 billion, which could soar even higher if NTLA-2001 has any chance of success. Unfortunately, it will be a long time before we know whether NTLA-2001 has the potential to generate sales. The company plans to begin a Phase 3 trial in ATTR patients with heart damage by the end of 2024. It will be many years before this trial yields meaningful results to support a marketing authorization application.
The stock could triple over the next year, driven by enthusiasm driven by clinical trial data rather than sales. However, betting on continued success is very risky, so most growth stock investors would be better off avoiding this company until it has a product to sell.
Should you invest $1,000 in Ginkgo Bioworks right now?
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Cory Renauer has no position in any stocks mentioned. The Motley Fool has positions in and recommends CRISPR Therapeutics, Intellia Therapeutics, and Pfizer. The Motley Fool has a disclosure policy.
Two growth stocks that could rise 144% and 202% this year, according to Wall Street, are published by The Motley Fool
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