I confess, I wanted to write this particular article now because it happens to be partially about a stock I’ve been watching for ages, and that finally hit my “buy” point this week… though yes, the ad for this entry-level Altimetry newsletter is also circulating heavily today, driving a lot of questions my way, even though it is actually dated “February 2022.”

So that’s my deep, dark confession — I was going to write about this company for the Irregulars anyway, since I bought shares today… but now I can write about it for everybody, and also throw in a look at the other two “secret” stocks Litman is touting. Ready?

The ad is for Hidden Alpha, which is kind of a “greatest hits” newsletter, they highlight stocks from the Altimetry database that Joel Litman and his team particularly like, and analyze those ideas in a monthly newsletter, without actually giving access to that larger Altimetry database of adjusted financial results that Litman sells separately.

As with other newsletters, especially those from Altimetry owner MarketWise (MKTW), the marketing plan is very clear — offer an appealing info source with some interesting stock analysis for $49 or $99 a year to bring people in, then barrage them with upgrade marketing to get the “better” stuff (access to the Altimeter database for $99/moth, or higher end newsletters like High Alpha or Microcap Confidential for $3,000… or, of course, cross-marketing from Brownstone or Empire Financial or Stansberry or the other publishing brands they own).

Not to say that there’s anything wrong with this basic “upgrade funnel” publishing strategy, just know going in that your first purchase makes you the most popular guy in the room — you’re gonna have a lot of new friends who want to sell you stuff (and, of course, I can share my anecdotal experience: From covering these newsletters for 15 years, I’ve found that the “entry level” letters tend to have a lot more happy subscribers and defenders than the expensive “upgrade” letters — the sub-$99 publications tend to recommend more mainstream investments, and that’s what most people want, most of the time… expectations of some mythical secret or magical solution being available for $5,000 tend to make people grouchy about the high-dollar letters, partly because they tend to recommend more esoteric stuff, penny stocks or trickier strategies, in order to justify their price, and those kinds of investments generally have a much lower “hit” rate… to sell the pricey letters, it seems, publishers have to make promises they can’t often keep).

But anyway, that’s what we’ve got here — an ad for the entry level Hidden Alpha ($49 for year one, renews at $199), and the bait they throw upon the waters is that they can recommend three winners from “Steve Jobs’ Final Prophecy” — here’s how the ad opens:

“Steve Jobs’ ‘Final Prophecy’ is Coming True Right Now

“The ‘Perfect Solution’ he didn’t have time to reveal is now quietly spreading into every American industry, solving hundreds of problems facing mankind—and it’s about to create a historic wave of stock market wealth”

So what is that “Final Prophecy?” Here’s a little more to tempt you…

“Forget cryptocurrencies, 5G, electric vehicles, and self-driving cars. Forget the blockchain, quantum computing, artificial intelligence, and virtual reality. Forget NFTs, apps, space exploration, and cloud computing.

“You see… these are all digital technologies, and although most investors don’t realize it, they are yesterday’s news.

“And I am 100% convinced the digital revolution as we have known it is about to get steamrolled by something even bigger – which is just now hitting an inflection point.”

And what’s that inflection point? He goes on to tell the story of Barney Graham, who was a leader of the team at NIH that was able to get the genetic code of the new coronavirus that was spreading in China in early 2020, and share it to enable the creation of new vaccines for that virus in just a few days. A lot of that was luck and preparation, of course, Graham and the international researchers he worked with had been worried about the next pandemic being a flu or another coronavirus for years, and Moderna (MRNA) and other outfits had been working on the foundational R&D to create genetically engineered mRNA vaccines, but it was still pretty remarkable. It’s easy to forget how amazing this work was, now that the pandemic and the vaccines have been weaponized as political tools (just mentioning vaccination means I probably should turn the comments off for this article, I have no interest in hosting another shouting match), but the fact that these technologies could deliver safe vaccines that were more effective than lots of past vaccines for diseases like the flu (and much more effective than the non-mRNA vaccines being used in places like China, whose vaccination failures are helping to cause huge problems now, with more waves of zero-tolerance lockdowns), is a huge step forward. We’ll be that much more ready for the next pandemic, and may be able to cure and prevent lots of other diseases following this breakthrough success.

Here’s how Litman puts it:

“Barney Graham and his team didn’t need a sample of the live virus – which they couldn’t get anyway, because the only cases at the time were in China, where reportedly only 41 people had been infected.

“But just 66 days from the time Graham received his e-mail, a company he was working with (Moderna) was able to deliver the first test shot to a volunteer in Seattle.

“In a few years, I believe we’ll look back on this occasion the way we look back at landing on the moon… or the first telegram being sent around the world back in 1911……

“As one of the most important technological breakthroughs of our time.

“That’s because this was the tipping point for the most important technology of the next decade, called: ‘SynBio.'”

This has been emerging as a real focus of investment newsletters and pundits so far in 2022… I’ve covered a variety of “synthetic biology” and genetic analysis and engineering companies over the years, but this is the biggest wave of these teasers I’ve seen since the early days of the CRISPR genetic editing breakthroughs.

That first wave of CRISPR excitement led to (arguably) premature IPOs from folks like Editas (EDIT) and Intellia (NTLA), and to ongoing patent disputes as we remain years from seeing approved drugs and therapies in this area.

Now, though, the pitches are much broader — often focusing not just on the ability to edit genes or develop new drugs, but on the ability to create synthetic cells and new materials. Here’s how Litman puts it…

“SynBio is basically the combination of computer science with genomic analysis and gene editing, and is now being used to create new materials, new medicines, new food, new fuels, new tests, new products, and so much more.

“In short, because computers are now a million times faster than they were just a few years ago… and because the price of sequencing DNA (the building blocks of life) is now 1/10 millionth of what it cost 20 years ago, an entirely new field (SynBio) has emerged, which allows us to create, manufacture, and improve so many things in our world, starting at the cellular level.”

Lots of examples are given, from Galy and it’s synthetic lab-grown cotton, to cannabis compounds or rubber grown by Amyris (AMRS) in their labs, to lab-grown leather from Bolt Threads, to self-healing concrete and algae-based biofuels and bioplastics. He also mentions some examples that do indeed sound cool, but should probably serve as cautionary tales for investors, like Zymergen (ZY), which is developing bio-engineered thin-film plastics for display technologies but revealed, shortly after their IPO last year, that they weren’t nearly as far along in the path to commercialization as they had implied (they went public at a $4 billion valuation, less than a year ago… it’s now $170 million).

And then he gets into the “freebie” stock that he mentions…

“SynBio will create incredible new testing abilities as well. Here’s one example…

“Did you know today there’s NO recommended early screening for more than 70% of the cancers that end up killing people?

“But a U.S.-based company has developed a simple SynBio blood test to prescreen for 50 different cancers, BEFORE they are symptomatic… it’s my #1 favorite investment in the SynBio space today… and this cancer test is only a very tiny part of what they do.”

And he drops in the financial pornography that is essential to the success of any teaser pitch…

“The good new is, you can be an early investor now too… and get in at ridiculously low prices, before the rest of the world catches on.

“Sure… you can wait a few years and still have the chance to make good money as this becomes the dominant tech trend of the next decade…

“But think about it this way…

“You could have made 230% owning Google over the past five years…

“But you could have made 5,000% if you’d bought the company in its early days….

“… you could have made 280% if you’d bought Amazon five years ago…

“But you could have made about 6,700% if you’d purchased shares after it was clearly established to be one of the most important e-commerce companies.

“Yes, you could have made about 360% owning Nvidia, one of the world’s best computer chip makers, over the past four years…

“But you would have made more than 4,900% if you purchased it just a few years earlier.”

Of course, sometimes it’s not NVIDIA or Amazon that you end up buying in those early days… sometimes it’s Zymergen, or Worldcom, or Webvan.

And the big picture sounds awfully appealing…

“I bet in 20 years, we’ll look back on the environmental extremists of today the same way we now look back on the overpopulation extremists of the 1970s, who appeared all over television and the media, proclaiming the world was about to end because of ‘overpopulation.’

“SynBio solutions will make resources cleaner, cheaper, and more readily available in the years to come. This is why Larry Fink, the head of BlackRock (the largest money manager in the world) says the next 1,000 small companies that ultimately become worth $1 billion dollars will come from this space.

“Fink says the next big stock market winners, ‘won’t be a search engine, won’t be a media company, they’ll be businesses developing green hydrogen, green agriculture, green steel, and green cement.'”

That rings a bell, one of those overpopulation advocacy groups, Zero Population Growth, was still around when I spent some time as a fundraising copywriter 25 or 30 years ago — I remember they hired my boss to write some new pitches about the unsustainable population of about 5.5 billion humans back then. They’ve now changed their name, to Population Connection, and seem to have softened their tone quite a bit as the global population has grown by another 50% or so, and, thankfully, many measures of global health have improved dramatically during that time. I certainly agree that sometimes revolutionary changes in technology can be a big part of making the unfathomable work out just fine… humans are linear thinkers, and it’s hard to see, beforehand, the massive and exponential change that innovation and scientific breakthroughs can bring to change what we see as a linear progression of bad news into the future. Hopefully that will include solutions for pollution and climate change and deforestation and health and so many of the challenges that face our growing world.

But anyway, I got off track there — what’s that free stock he gives away? Here’s the quote:

“I strongly recommend you start with buying shares of my favorite business in the SynBio sector right now…

“Step #1: Buy ILMN

“The entire SynBio process starts with gene sequencing… that is, the ability to unravel the DNA not just of humans, but also potentially every living thing on the planet.

“And one company offers by far the most powerful DNA sequencing around.

“This firm controls roughly 90% of the market for gene sequencing machines in the U.S., and they are still growing like crazy. When the final numbers came in for 2021, the company reported its best year ever… revenue grew 25% in the fourth quarter… and the firm added 50% more customers than in 2020.”

He suggests buying ILMN up to $510 per share, which seems a little aggressive here, a couple months after he probably penned those words — but the shares were only around $350 back in February, and I agree that Illumina, despite its large size and likely slowing growth, is an appealing foundational company in gene sequencing that continues to have the inside track. They might not dominate forever, there are lots of companies making genetic sequencing equipment and new technologies are being developed every year, but being the established leader, with most of the world using your machines, gives you a strong base from which to compete. I’ve been holding out for $300 over the past couple years, and some recent disappointments and the weakness in growth stocks has finally brought us down to that number, so I bought some Illumina shares today.

Illumina is not a cheap company — they’re still valued at about 10X sales, and they are likely to have their earnings return to a normal trajectory as the COVID-19 sequencing work fades off, as is the case for lots of synthetic bio and testing companies who enjoyed a bit of a pandemic windfall in 2020 and 2021, so it’s going to look for a little while like they’re not really growing. They’ve been through a few of those “growth plateaus” in the past 15 years or so, and have pretty quickly recovered to begin growing again each time, but I think their established market dominance is worth owning, even at what is a fairly elevated valuation — ILMN is likely to drop from $5.90 in earnings last year to $4.15 this year, before re-establishing earnings growth (starting with probably 25% earnings growth in 2023, if analysts are correct). That means we’re paying close to 60X earnings here, and that’s clearly a leap of faith to some degree.

One of the products from Illumina that Litman mentions is their multi-cancer screening test — that’s a product of Grail, which was spun out of Illumina many years ago and then re-acquired by Illumina last year, though that acquisition could be reversed — both EU regulators and the US Federal Trade Commission sued to stop it, and the summary of that case highlights the strong market position of Illumina (the highlighting is mine)…

“The Federal Trade Commission filed an administrative complaint and authorized a federal court lawsuit to block Illumina’s $7.1 billion proposed acquisition of Grail—a maker of a non-invasive, early detection liquid biopsy test that can screen for multiple types of cancer in asymptomatic patients at very early stages using DNA sequencing. Illumina is the only provider of DNA sequencing that is a viable option for these multi-cancer early detection, or MCED, tests in the United States.”

I don’t know how it will work out, of course, and Grail is also in litigation with another company I have a small stake in, Guardant Health, which is also commercializing cancer detection tests, but genetic testing and screening seem very likely to become mainstream tools for doctors over the next decade, and Illumina is in a very strong position with dominant market share in DNA sequencing tools. The market will evolve, and may be meaningfully disrupted (I bought one of the disruptors, too), and Illumina obviously knows this — that’s why they tried to buy PacBio (PACB) a few years ago, one of the leading competitors, with that deal also quashed by regulators — but the established market leader is usually hard to unseat. Illumina is believed by some to have about 80% market share in the global DNA sequencing market, and even though I think that’s probably a pretty wild exaggeration (most assessments are more like 40-50%), they’re starting strong as we enter whatever the new era of DNA testing and “synthetic biology” turns out to be. Maybe their strength will end up being their weakness, as the “long read” DNA sequencing tools are improving and getting to be close to as accurate, and more data-dense, than Illumina’s “short read” sequences, but I like their odds as the incumbent — and with a huge installed base and consistent profitability, they are much less fragile than the emerging competitors.

Here’s how Litman’s ad sums it up:

“And based on our Uniform Accounting analysis, Illumina should be worth roughly 20% more a year from now… 40% more in two years… and about 130% more in five years, compared to today’s price.

“But those are conservative estimates…

“In the next 18 months or so, I think we’ll see an investment frenzy in the SynBio space – and if I’m right, the numbers will get ridiculous.

“In fact, we could see something similar to the frenzy that erupted in the electric vehicle (EV) space recently.”

So… hopes of a synthetic bio mania emerging, perhaps, but no real claims that this stock will double tomorrow — and that’s fair, it’s already a very large company, with a market cap near $50 billion, it’s not likely to provide near-term “shock and awe.”

But that’s just the free pick Litman gives away — what of the “secret” stocks? Let’s see how he teases them…

“The thing about Illumina is that it’s already a big company… and hardly a secret.

“I think you’ll do very well with this stock in the long run – that’s why it’s my top SynBio recommendation.

“But I strongly believe there are other ways to potentially make significantly more money in the SynBio space over the next few years.

“And that’s why I strongly recommend you also take Step #2: Buy the next wave of big SynBio winners.”

That leads to two “secret” stocks for the Thinkolator to sniff out, though we don’t get any real clues about them — this is what Litman says:

“

“The good news is, in the entire SynBio space, there are just two companies that are head and shoulders above the rest for profiting on this trend right now.

“One of these companies is a leader in this space, and pocketed more than a 500% return by cashing in one of the Covid vaccine winners.

“In my brand-new report: Profiting From the NEXT Big SynBio Wave, I’ll show you exactly which two stocks to look at right now, what to buy, and what price to pay for huge potential gains in the coming months.”

”

We can’t be sure about those two “SynBio winners,” he doesn’t really drop any more useful hints about those so we’d just be guessing — Moderna (MRNA) is an obvious guess, the biggest COVID vaccine “winner” and still up about 500% thanks to those vaccine sales, despite the fact that it has fallen 70% from the highs of last August, but that’s just a guess.

So I’ll move on to the clues he provides in “step #3” instead — that’s more in my area of interest anyway, the platforms enabling new breakthroughs in synthetic biology. Here’s the intro to that section:

“One of the best ways to profit from any new technology is to ‘own the platforms.’

“Platforms are businesses that create systems or marketplaces, allowing other businesses to sell their products.

“Google is one of the most famous platforms – it makes money connecting millions of businesses around the world with customers… and the company has returned more than 5,000% gains over the long run.”

And then some clues…

“First mover advantage here is huge, and that’s why I want to show you how to invest, today, in two SynBio platform companies I believe will dominate this space and potentially make early investors many, many times their money in the years to come…

“The first of these companies is THE dominant player in this space – they provide the platform and equipment for hundreds of companies, and just like Google bought up YouTube… this company is actively buying up other companies that offer key technologies for cell sorting, drug manufacturing, and protein production.

“I recommend you buy this business immediately and hold for the long term. I think it’s going to be a huge winner, and most people have never heard of it.”

Those clues are also a little squishy, but the Thinkolator’s best match here is the second-place company in DNA sequencing equipment, and a company that is much larger and more diversified than Illumina — this is likely Thermo Fisher Scientific (TMO), which at this point is basically a “picks and shovels” ETF for betting on the rise of biotech in general. They sell laboratory products, advanced instruments, specialty diagnostics tools, and, yes, DNA sequencers and production platforms for biological products. Here’s how they describe themselves:

“Thermo Fisher Scientific Inc. is the world leader in serving science, with annual revenue of approximately $40 billion. Our Mission is to enable our customers to make the world healthier, cleaner and safer. Whether our customers are accelerating life sciences research, solving complex analytical challenges, increasing productivity in their laboratories, improving patient health through diagnostics or the development and manufacture of life-changing therapies, we are here to support them. Our global team delivers an unrivaled combination of innovative technologies, purchasing convenience and pharmaceutical services through our industry-leading brands, including Thermo Scientific, Applied Biosystems, Invitrogen, Fisher Scientific, Unity Lab Services, Patheon and PPD.”

Like most of the companies we’ll ever look at in this space, results have been quite volatile for the past couple years — a lot of regular work stopped, as hospitals paused elective surgeries and lots of offices and labs were closed down, but a lot of COVID-19 work boomed, and it often takes some time for investors to get comfortable with what “normal” might be after a bumpy couple of years… but they’re huge and very diversified, and TMO is probably among the safest and most consistent bets on “more science” you can make.

Thermo Fisher is big, with a market cap of over $200 billion, and it’s probably best to think of it as a “growth at a reasonable price” blue chip company at this point — on that front, it looks pretty good but not quite cheap enough to be super-tempting. It’s hard for me to buy because I’ve been watching for so long, and foolishly didn’t buy shares at much lower levels, but it’s close to reasonably valued if you think the analysts are being pretty conservative with their earnings forecasts. The balance sheet is just fine, the 25% drop over the past few months is the worst drawdown the stock has had since the 2008 crash, and the multiples, while certainly above average for large stocks, are not wildly out of line. TMO trades at about 28X trailing earnings right now, with a forward PE of about 25, and analysts think they’ll grow their earnings at 9% a year over the next five years. That’s not quite down to the PEG level I like to see (that’s PE ratio divided by expected growth rate), I’d rather see the PE be no more than twice the expected growth rate (with 9% growth, that would mean a forward PE of 18, which right now would mean a share price of $436, about 20% below where TMO trades today). Put another way, if you think TMO will grow at 13% a year instead of the 9% analysts are forecasting, it’s a pretty easy buy here. I wouldn’t talk you out of TMO, they’ve got their fingers in a lot of appealing pies and have proven that they can buy and integrate new companies very well to add yet more pies to their larder, but I’d rather see a lower share price.

And what’s next, you ask? One more set of clues…

“There’s a second platform company I’m going to tell you about too…

“And I think it could be the biggest winner in this space in the years to come.

“In short: I believe that over the long run, folks who get in at today’s ultra-low price could make 100-times their money or more in the long run, on this soon-to-be dominant SynBio platform.

“This company has been around for more than a decade, but just went public in the past year. Few investors know about it today, and it trades for less than $10 a share.

“Lab operations on this company’s platform have been scaling at roughly 200% per year… meanwhile, their costs to program cells have been decreasing about 50% per year!

“And this is why the company’s customers include many of the biggest names in the world of Pharma and Biotech (like Bayer and Roche), agriculture (like Cargill), and health care (like Quest Diagnostics).

“Just don’t wait too long – word is starting to get out. This company was already mentioned on 60 Minutes, because the firm’s technology was instrumental in the Covid vaccine success.”

So yes, that’s yet another tease of Ginkgo Bioworks (DNA), which we’ve written about a few times as it has been teased in recent months, with newsletters tempted by the falling share price as this synthetic bio manufacturer feels the pain of being in the public markets this year. In just the past month or so, Whitney Tilson has pitched Ginkgo as “America’s Next Monopoly” and Luke Lango has touted it as the “Next Microsoft”. That’s enough rising attention for me to place a small bet, so I do hold some call options on Ginkgo at this point, though the stock has continued to fall and those are losing money at the moment. That 60 Minutes piece is now a year old, but it’s still kind of interesting if you want to see the brief snippet….

Ginkgo Bioworks is working on optimizing the manufacturing process for RNA – the key ingredient in vaccines produced by Pfizer/BioNtech and Moderna. RNA instructs cells to produce proteins that trigger the body to fight the coronavirus. https://t.co/w7tcvlUjpz pic.twitter.com/ZKpIY8Bwb8

— 60 Minutes (@60Minutes) March 1, 2021

Ginkgo is still a pretty big company, it’s got a market cap of about $5 billion — but the share price is certainly scaring investors, this was one of the latecomers to the SPAC party and went public last October, getting to about $15 on the initial surge of enthusiasm but now trading around $3 (and falling yet again today, by about 10% as I type). They’ll continue to lose money for at least a couple more years as they spool up the business, and revenue growth is not likely to be dramatic, partly because the COVID testing business is falling off as fast as their core “foundry” work at making synthetic cells for their customers is growing, but I do think there’s a decent chance that their early leadership in this space will lead to eventual success.

Some of the risks of Ginkgo are summed up in Scorpion Capital’s short attack from last year — they think the company is too heavily reliant on related parties, with many of their early stage customers for the foundry work being firms that Ginkgo helped to launch. That’s certainly a concern, since they haven’t really hit self-sustaining levels of business yet, but it’s a lot more of a concern at a $15 billion valuation than it is at $5 billion, and they are also working with large partners like Cargill and Bayer. High risk, high potential reward if it works out… they won’t report again until late May, most likely, so you’ve got time to think it over. Here’s part of what I wrote about Ginkgo a few weeks ago, for what it’s worth:

The basic financials still highlight that this is very much a “future” idea, not a “the numbers make sense now” idea – and they’re clouded by the fact that they had a big surge in COVID-related revenue (they have a biosecurity division that does a lot of testing work, which is slowing down markedly now). They’re currently valued at about 35X what they think their core “Foundry” revenue will be in 2022, that’s the real synthetic biology work they do, and the reason to own the stock, but if you include the COVID testing work the reported numbers for 2021 look better than that, so you’ll see that overall, the company is valued at about 18X sales now. COVID testing/biosecurity generated about 2/3 of revenue in 2021 and will likely be about half of 2022 revenues as that business slows down.

If you want to be optimistic, then you can look at just the Foundry revenue and see them growing at 91% (expected) this year, with the possibility for margins to improve in a few years as royalties and/or equity stakes in their customers’ programs begin to build… if you want to be pessimistic, then you’re paying almost 20X revenues for a company that loses tons of money and will probably only grow by 5-10% on the top line this year, and given the likely gradual erosion of he COVID testing business that top-line growth might not look very exciting for at least another year or two….

Personally, I’d worry more about the fragility of Ginkgo’s business in these early days than about actual fraud — it’s not necessarily fraudulent to invest in your customers in the hopes that they will become bigger customers, in some ways it’s like Coca Cola giving you a soda fountain in hopes that you’ll buy more syrup, but it’s true that Ginkgo didn’t really emphasize the fact that they’ve been actively involved in seeding the companies who they hope will become their keystone customers. Whether that’s a step in the maturation process as we wait for those customers to grow (some of them also have meaningful funding from other investors, they might fail but they’re not just shell companies made up out of thin air), or for more of Ginkgo’s work to (hopefully) be scaled by larger customers in the future, or a fraud that means they’re just manufacturing revenue that they know is temporary and will forever fail to grow as hoped, you’ll have to make the call. I’m comfortable speculating on this one with a small stake or, as I did, with a call option position while I think it over, but, as with so many emerging technologies, it’s definitely a high risk speculation today. The business model makes sense, the field is promising, they’ve got enough cash to keep seeding their growth prospects for a while yet, but the business is far from being profitable or self-sustaining at this point.

And that’s all she wrote, kids — have any thoughts on the “synthetic biology” revolution or its possible winners? Think Illumina, Thermo Fisher Scientific or Ginkgo Bioworks fit in as potential platforms on which this future will be built, or do you prefer others? Let us know with a comment below…

Disclosure: Of the companies mentioned above, I own shares of and/or call options on Illumina, Amazon, NVIDIA, Ginkgo Bioworks, Guardant Health and Oxford Nanopore. I will not trade in any covered stock for at least three days, per Stock Gumshoe’s trading rules.