Frank Curzio has been around the block a few times, helming mostly small-cap newsletters for three different big publishers over the last decade or so — his current “entry level” newsletter for Uncommon Wisdom/Weiss is called Disruptors and Dominators, and he’s selling it today by touting the possibility of 2,997% gains from the advancing science of personalized medicine.
The attention getting bit, reflected in the headline, is that “this swab can tell you how you’re going to die” piece — which refers to the fact that you can get your DNA sequenced now at a fairly reasonable price and learn about what markers you have that might increase your risk of specific diseases or conditions, (and, if you choose, change your lifestyle to help mitigate those risks).
That’s been available for a while, though the costs keep coming down — I don’t know what the consumer demand is for knowing specific disease risks, and the FDA is worried that consumer tests are not standardized at all and may not be helpful or consistent across testing companies (if one test says your risk of melanoma is below average, will you foolishly stop using sunscreen? If your risk of lung cancer is below average, will you take up smoking? Remember, the FDA has to deal with the fact that many of us act are idiots).
The highest-profile of the “cheap at home DNA analysis” companies, 23andMe, has been squashed by the FDA a couple times for pushing the envelope on offering “diagnostic” information from their $99 spit tests and they’re now offering primarily an “ancestry” DNA test to find out where your people come from, though I’m sure they’re not done trying to get FDA approval for other tests.
But that’s beside the point, really — Curzio’s push is that this industry is going to grow because of personalized medicine, particularly the pharmaceuticals that are targeted at particular genes or at particular mutations. And that this will only accelerate as the costs come down with new technologies and improved efficiencies.
So what’s he suggesting we invest in? Well, he’s got three “secret” stocks that he’ll tell his subscribers about — one big DNA sequencing company, one smaller upstart, and one company that apparently speeds up testing. We’ll get into the details on those and see if the Thinkolator can identify them for you, but first let me share just a wee bit of the tease:
“From antivirals to penicillin and chemotherapy … mankind is now poised to make the next great leap in medicine … and it’s already projected to be worth over $1.6 trillion within the next few years …
“The U.S. Government has already invested $14 billion in this technology … and ‘made back’ $965 BILLION as a result …
“Some of the earliest investors have had the chance to turn every $100 into $2,997 … but as we race to this historic tipping point, the possibilities are getting even better — with the chance to turn every $1 into $6.14 in as little as 21 days …
“It’s the genesis of a new form of medicine that will alter the world….
“Not since the birth of penicillin has any breakthrough had this type of life-saving potential….
“… it will soon stand beside penicillin, radio imaging, and sterilization of medical equipment as the greatest contributor to length and quality of life.
“In the next few months, this technology will burst into the mainstream as companies like Pfizer, Merck, and Roche race to harness it.
“Even before the science was settled we’ve seen enormous gains. The upward momentum alone could send it to the stratosphere at record speed.
“Like one firm that would have almost tripled your money in 13 months …
“Another which turned every $1 into $6.14 within 21 days …
“And a third which exploded every $100 to $2,997!”
Enticing as that sounds, we can be pretty sure that it won’t “burst” into the mainstream and make us all rich in a matter of months — some of these stocks may do well, but these revolutions don’t happen overnight… and this particular one has been a very iterative revolution, with DNA sequencing and analysis getting better every year, with each new machine and each new test. It’s revolutionary, it may bring huge rewards for mankind, but there’s not a specific line we’re going to cross in the next six months that will make (or break) these advancements (or, very likely, cause monumental changes for the companies Curzio is teasing).
So with that caveat, what are the stocks that can benefit from this push for more and more DNA sequencing and analysis?
Here’s the first bit of clues from Curzio:
“… there is one I recommend … and it’s arguably the king of the industry right now.
“Over the last decade, this company’s stock has shot up 2,997.27%.
“I want you to think about this …
“You could have invested $10,000 in this firm in June 2005.
“Today, that $10,000 would be worth $309,727.”
That one, you won’t be terribly shocked to hear, is giant Illumina (ILMN) — Illumina did go up by about 3,000% in the ten years leading up to this past June, and it is a very large company with a market cap approaching $30 billion… and it is widely considered the “king” of DNA sequencing equipment (though a few companies might argue that point, like Thermo Fisher Scientific, which bought large competitor Life Technologies a few years ago).
Curzio says that…
“this company could actually double from where it stands today.
“However, it will more likely deliver steady growth instead of exponential profits….
“The company has already zoomed 2,997% … but consider that it only generated $2 billion in revenue last year …
“And right now, it’s at the forefront of a new push in oncology to eradicate cancer — a market already worth $12 billion, which is largely untapped.
“What happens if this company catches another $2 billion? What if it captures $3 billion?
“Projections show this company will grow its revenue by 20% for the foreseeable future … four times the average of biotechnology companies.
“It’s likely why Citadel Investment Group, one of the top five hedge funds in the world, swooped in and bought up a barrel full of shares … becoming one of the firm’s largest stakeholders.
“I’d say the chances of it doubling, even tripling are well within the cards.”
Even doubling might be a feat, given the fact that the stock currently trades for 40 times estimated 2017 profits, but the stupendous growth in past years has certainly been driven by actual revenue and earnings growth… this is not just a momentum or story stock, and although it’s expensive, with a trailing PE of 58, that PE ratio has actually fallen over the past couple years as earnings growth has kept up with, and sometimes exceeded, price per share growth.
I imagine that the biggest risk for them is probably competition, as new technologies are developed and as less-expensive equipment is designed and sold by smaller companies trying to take market share, but it’s also true that this risk of the “upstart” is often overestimated by investors — large, established companies with strong market share are hard to unseat, even in fast-changing markets, and that may be doubly true when you’re dealing with precision equipment that requires a high level of confidence and reliability.
And then Curzio says as much while hinting at two other stocks… here’s a bit more from him:
“Today, there are a number of early-stage sequencing companies pioneering newer, faster, cheaper methods of sequencing … accelerating our sprint towards an era of personalized medicine.
“For example, one firm out of Grand Island, New York is spearheading a DNA sequencing approach using a technology similar to camera lenses.
“With it, they’re rapidly screening thousands of genetic sequences in just a few hours at absurdly low prices … as little as $100 a sample.
“There is a whole range of new, dynamic technologies coming onto the market driving the price lower and making sequencing faster.
“There is a handful of companies racing to the top…. including one I call the ‘Plumb trade,’ already positioned to completely transform the sequencing industry as its technology becomes more and more in demand.”
So there’s a risk, and a hint — no, it’s not the “Grand Island” bit, that may well be a reference to Life Technologies, which is probably the second largest DNA sequencing equipment maker… they’re owned by Thermo Fisher now, and have dropped the Life Technologies name, but other companies have been pushing to use cheap optical chips in DNA sequencing as well, I have no idea how far along they are.
And then we get into the clues about this “Plumb Trade” stock, so named for Mike Plumb, the sniper who famously shot a pistol out of a suicidal man’s hand in 1993.
“Now this hyper-accuracy … this is why I call the investment I want to share with you the ‘Plumb Trade.’
“To understand the Plumb trade, you need to understand the slight failing of the High octane firm I mentioned a moment ago.
“Because of their specific way of sequencing DNA, they have a potential 15% margin of error. A 15% margin of error means that Mike Plumb might have shot the victim’s hand off.
“In medicine, it means there’s a 15% chance the analysis will miss some piece of data.
“But unlike the high octane giant … the Plumb Trade boasts a fantastic 99.999% accuracy. That’s sharpshooter precision.
“The only downfall of this trade is that the technology was pretty pricey — $700,000 for a machine and $40,000 for analysis.
“But the price has fallen dramatically with the rest of the industry … Not only has the machine itself become way more affordable, but the cost of analysis with this sharpshooter accurate technology has gone from $40,000 to under $12,000.
“The result is sales tripling over the last two years … and doubling in the last 12 months.
“And expectations are for revenues to continue growing at 25% for at least the next year.”
OK, so that growth sounds pretty interesting — will that be the kind of breakthrough that can unseat Illumina or Thermo Fisher? More details… or as we call ’em, “hints” …
“It’s why Roche forged a partnership with the company … and has been throwing money at this Plumb Trade — so far investing $55 million as the firm continues to meet milestones … with plans to invest another $20 million or more as they accelerate.
“Insiders recently bought a kingly 1 million shares on the open market …
“Because you see, the Plumb Trade has stayed at the same price for the last 18 months … . A paltry $5 per share.
“This level of growth at that price is one of the most obvious disconnects I’ve ever seen … . Especially when you consider they have $79 million in cash….
“With all the money this firm is marshalling, it wouldn’t surprise me to see it jump to $10 … even $15 in the near future … and as high as $20 or $25 after that.
“We’re talking about a potential 500% gain within the next 12 to 24 months … the power to turn every $5,000 into $30,000. And as I showed you before … with its revolutionary technology, the Plumb Trade could easily shoot up 5-fold in days with one announcement.”
That really illuminates one of the biggest challenges of being an individual investor — the stock market valuation of a company is a representation of what hundreds or thousands of individual and institutional investors think that firm is worth… so when there’s a “disconnect” that seems dramatic to you, is it because all those folks are wrong and you’re right? Or is it the other way around? The market isn’t always right… but neither are you.
Enough philosophizing, though, who is this? This second stock, sez the Mighty, Mighty Thinkolator, is Pacific Biosciences (PACB).
PACB has been teased aggressively before, particularly by Marc Lichtenfeld over at the Oxford Club, and I haven’t been watching them all that closely — the stock has been on a gradual decline all year, perhaps because earnings have disappointed as new equipment sales were weak last quarter, and as investors reminded themselves that there aren’t any big $10 million payouts due from Roche this quarter like they received earlier in the year (I think the total payment potential from their Roche partnership is $75 million, and they’ve so far received $55 million… but that might not be exactly correct). The use of their machines does still seem to be growing so I guess that’s good because it keeps the tests/disposables sales growing over time, but I have no idea what the real prospects might be for substantial growth from here. It’s a very small company, the market cap is now down around $300 million and they do still have $73 million in cash (down from $79 million last quarter). You can see our older article and discussion about this one here. The stock was around $7 then, so it is, at least, cheaper now. Insert ironic smiley face here.
“My third investment is… creating the ‘genetic assembly line.’ And just like it made Ford a colossus and created a string of opportunities in the auto industry … this firm’s crucial development is going to push the medical bonanza to new heights.
“See, one of the biggest drags on sequencing DNA is what’s called ‘sample preparation.’ This is the process of extracting the DNA, measuring it for quantity and quality, breaking it down, and replicating those fragments, which can then be used for analysis.
“Not only can the procedure take days, but the more samples coming in … the longer it takes. This is a logjam that is hindering the rapid development of sequencing because millions of samples are waiting in line to be prepared for sequencing.
“It’s also expensive, with individual samples running from $50 to $75. It’s like having a team of workers going through each sample at a snail’s pace.
“But this ‘assembly line’ company is revolutionizing that. With a new, patented technology … they’re trimming this preparation process down to a few hours, while analyzing dozens of samples simultaneously. And it costs them just $10.50 per sample.
“This company is set to rule the roost … It’s providing a service every sequencing company needs, with a speed and price tag that blows their competitors away.
“And now is the prime time to buy.
“After their share prices doubled in 6 months, a recent earnings report caused the stock to tumble. But this drop is exactly what I’ve been waiting for — a golden buying opportunity …
“One poor report — mostly caused by pure short-term issues — caused it to drop …
“But when you consider the firm is expected to grow revenues 20% — even after the poor report — it’s not hard to believe it could quickly recoup its losses and go even higher.
“Plus, due to its proprietary technology … there’s potential for it to be bought out by Roche or even the high octane company I mentioned earlier.
“With $117 million in cash on the balance sheet and modest debt that’s five years from being due … I think the upward potential of this company is breathtaking.
“I believe it can easily double from where it stands today … and the upward momentum could take it to the stratosphere.
“This is a great buy in general. But it’s an insanely good one right now.”
Which is this one? We’re slightly short of a 100% match here from the Thinkolator, but we’ve got a pretty high degree of certainty that this is Fluidigm (FLDM), which has a stock chart only a roller coaster enthusiast could love — $15 to $50 to $20 to $45 and back to $10, all in just about two years.
Do I know anything about it?
Um, no. And unfortunately, time escapes me here — I’d rather give you a chance to think about it and discuss it than sit on it for a few more hours to get a better understanding, so we’ll open up the floor to those more knowledgeable than I. Why is FLDM so volatile? What’s the deal? They do have equipment that cuts testing costs to $10.50, though that’s specific and not necessarily a broad DNA sequencing test, they do have expectations of high revenue growth, and the stock sure did fall after bad earnings reports (and double before that), and they did have $117 million in cash in the March quarter (up to $118 million now), and the market cap is only $400 million or so, which means investors don’t have a lot of love for these folks now. Why, I dunno… over to you!