Adam O’Dell is pitching an “Imperium” machine and the world-changing returns that might come from… and, as you might imagine, his favorite “one small company” that is the best investment play on those changes. So let’s dig in and see what he’s talking about, shall we?
O’Dell used to be a market technician specialist for the Harry Dent newsletters, which got “dissolved” and were sucked up by Banyan Hill a year or two ago, and now he’s off in his own corner as the investment strategist for Money & Markets, which I guess remains either owned by or affiliated with Banyan Hill (he’s the only “name” there these days). This particular ad is for his Green Zone Fortunes, an entry level letter ($47/yr) that profiles one stock that’s “in the zone” each month. He generally focuses on technical and quantitative analysis, so I guess in some ways he’s playing in a similar sandbox to folks like Louis Navellier — screening and grading stocks to rank them.
The only pitch of his that I’ve looked at recently was last summer, that was a gold stock spiel and, well, the three mainstream gold stocks he pitched were, as you might expect, levered to gold prices — gold is down about 3% since then, so two of the stocks are down about 25-30% and the third is down 6%. If you bought all three and held, you would have lost some money at this point… and at the best moment, when gold peaked a couple months after those picks were pitched, you would have done roughly as well with those three stocks as if you had bought a gold goin, a hair better if you sold at the absolute peak (which was on my birthday in August, as luck would have it). I note that only to remind you that nobody is magic, and nobody has a “system” that picks the right stock all the time… but, as always, we’ll try to judge each investment idea we hear on its own merits.
So what’s he peddling today? What is this “Imperium” business? He starts out with what looks like a blueprint of a special machine…
“Take a good look at this machine…
“Study it and commit its every feature to memory.
“Because inside this machine is a technology that will be the most transformative in history….
“It’s a technology I call … Imperium.
“And it’s truly mankind’s next great leap forward…
“All told, it’s set to disrupt global industries worth a total of $64 trillion…”
Sounds pretty good, right? Global GDP is about $90 trillion, so boom, we get to disrupt 2/3 of that? Sounds super fun.
So how does one invest in this disruption? Say it after me, “one small company”…
“Yet one small-cap company … the company that makes this machine … is at the forefront of it all.
“And today, you have a once-in-a-lifetime chance to invest in this company … starting with a small stake.
“You’ll want to get in right away.
“Because investing in “Imperium” now could be like getting into internet stocks in the early 1990s…
“Where rare and exceptional stocks like Intel shot up more than 8,000% in 10 years.”
So what’s the story? This is, as you’ve probably already guessed, some sort of genetic testing company. And no, it’s not my all-time favorite company in the space, DNA Friend, so who is it?
We get the rundown of usual suspects who are involved, a list of names that is typically meant to inspire confidence:
“Jeff Bezos recently added to a $100 million investment…
“Elon Musk says Imperium is “amazing…”
“Bill Gates’ investment fund is contributing to a $429 million investment… saying Imperium is ‘one of the most powerful technologies of the 21st century’…Are you getting our free Daily Update
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“Mark Zuckerberg’s $3 billion fund is heavily backing ‘Imperium’…
“And Peter Thiel … a man that Forbes, Fortune and the New Yorker all call the best tech investor in history… He’s adding to a $110 million investment.”
Those people are not all invested in the same company, of course, but those are references to DNA-related investments those bigwigs have made, particularly into companies that are synthesizing DNA — like Peter Thiel’s backing of Synthego or Bill Gates’ bet on Gingko Bioworks (there are rumors about Gingko considering a SPAC merger with Soaring Eagle Acquisition (SRNGU), just FYI, but as of now Gingko and Synthego are still private).
So what’s our little genetic engineering or synthetic DNA stock today? Might it even be a more general genomics company? Let’s see what other clues O’Dell drops…
“‘We are at the cusp of [Imperium] really entering the mainstream.’ — MIT Scientist”
OK, so that’s just a quote from Illumina CEO Francis deSouza (yes, he did go to MIT — though he’s been a tech executive for 30 years since then), and the quote is now three years old. Yes, genomics and gene sequencing is probably past the “inflection point” now, given dramatically lowered costs for gene sequencing and the many practical uses that are already becoming pretty mainstream (like targeting cancers with specific drugs based on the genotype of the disease or the patient, for example).
And yes, Illumina (ILMN) is a pretty easy first choice if you’re looking into genomics companies — they’re huge (market cap $60 billion, $3 billion in sales) and could never be considered a “small cap,” so definitely that’s not the stock being pitched here, but they are the largest and most dominant “pure play” on genetic sequencing as a business. They have leading market share in sequencing machines and all the related products and services to make those machines work, and they’re also trying to buy back their former testing company Grail, which is working on commercializing cancer screening tests. Not cheap at 75X earnings or so, though I regret not buying it when it was on my watchlist and dipped briefly below $300 last fall, when their testing volume was down a bit because of COVID — they don’t really have a monopoly, but their market dominance and high margins do make me think of them in the same breath as Intuitive Surgical (ISRG) (which I do own, just for disclosure’s sake).
But anyway, that “imperium” machine image is just a picture of a genetic sequencer — it doesn’t really matter which one it is, since the pitch isn’t for the company that makes the machine, though if you’re interested in the specifics the form factor actually looks more like a ThermoFisher (TMO) sequencer, one of the Ion Torrent machines.
So what, then, is our “one small company” in this pitch? More from O’Dell…
“I’ve found the No. 1 small-cap stock to cash in on as Imperium soars nearly 200,000% in the next four years…
“The first time scientists sequenced all the DNA inside a single person, it took 13 years … and cost $2.7 BILLION….
“Yet, the fruits of this incredible breakthrough have been unavailable to the masses … until NOW.
“You see, thanks to hardware developed by my No. 1 Imperium company, (which I’ll now refer to as my No. 1 DNA company) anyone can get their DNA sequenced in under eight hours … at a cost of just $239.”
OK, that is in the range of prices you’ll see pitched for doing full genome testing, though more often that will cost close to a thousand dollars. Any other clues about this specific stock?
“The most exciting part is that my No. 1 DNA stock is set to be a central player in this fast-emerging mega trend
“It’s all thanks to their incredible competitive advantage.
“They’re able to process DNA much faster than the competition thanks to a new kind of microchip they’ve developed and patented.”
OK, a special kind of microchip… that sounds appealing, but how does it help with gene sequencing? More from the ad:
“It’s made from silicon just like the microchips you find in your computer…
“And it allows my No. 1 DNA company to process DNA at 10,000 TIMES the speed of the previous technology thanks to its unique ‘nanowell’ technology.
“Before the invention of this microchip, DNA was manipulated in test tubes by hand…”
That’s not really true. Yes, “nanowell” technology is important for DNA sequencing machines, but all the modern ones seem to use some variety of that. Maybe this “one small company” has a better mousetrap? In O’Dell’s words:
“This breakthrough microchip means my No. 1 DNA company will play a foundational role in the mass adoption of DNA technology…
“In much the same way the company Intel was central to the roll-out of the internet…
“…it’s my firm belief that the biggest company in the world will eventually be a DNA company.
“It could easily be the company I want to give you the details of today … my No. 1 company for the DNA revolution.
“They’re no more than a small-cap stock right now.
“Yet as you know, they have the patent on a microchip that will power every kind of application for DNA technologies now and into the future.”
OK, so how is this different from the chips and silicon being use by Thermo Fisher, Illumina and others? Maybe they’re a supplier to those companies?
“Understandably, the microchip that my No. 1 DNA company makes is the first-choice hardware in the industry…
“In fact, they have A-list clients lining up to use their technology…
“They’ve already partnered with the Broad Institute…
“$50 billion biotech giant Illumina…
“And even DARPA, the military’s advanced research division, who says this microchip puts my No. 1 DNA company light-years ahead of the competition…”
That DARPA reference is a bit secondhand, it comes from this quote, from a pandemic response researcher at Vanderbit who received DARPA funding:
“Twist is the only synthetic DNA provider who can deliver the quantity and quality of DNA we need for our projects rapidly. We are working with them not only as a vendor for synthetic genes and antibodies, but have expanded our relationship to leverage the Biopharma capabilities, which we believe complement our antibody discovery efforts.”
So yes, our match here is Twist Bioscience (TWST), which has been a fascinating company and gotten quite a bit of press since 2015 or so, and went public in late 2018. And yes, part of their innovation was a silicon plate of “nanowells” that had dramatically higher capacity than the existing hardware, though the story has been more COVID-related over the past year or so. Here’s how Twist describes itself:
“We are a leading, rapidly growing synthetic biology company that has developed a disruptive DNA synthesis platform to industrialize the engineering of biology. The core of our platform is a proprietary technology that pioneers a new method of manufacturing synthetic DNA by ‘writing’ DNA on a silicon chip.
“We are leveraging our unique technology platform to manufacture a broad range of synthetic DNA-based products, including synthetic genes, tools for NGS sample preparation, and antibody libraries for drug discovery and development. Additionally, we believe our platform will enable new opportunities including discovery partnerships for biologic drugs, and will enable new applications such as digital data storage in DNA.”
It’s a little easier to understand if you go back and read a little of the coverage of Twist five years ago, like this Wired article from 2015, but you can get a pretty good overview from their Investor Presentation last month.
I can’t claim to understand the technology very well, I’m afraid, but the financials have been ramping up nicely, with a boost from COVID-related work giving them a little revenue jolt last year and getting them over $100 million in sales for the first time, though they’re still a ways from reaching commercial scale even with their largest business, the next generation sequencing materials and services.
They are also working, like a lot of other companies, to put their expertise and their data libraries to work in generating antibodies for specific purposes that can be developed into drugs by pharmaceutical and biotech companies, and that stands out a potential revenue driver, too, though it’s a small segment of business and presumably won’t really bear any fruit for many years (none of their partnered programs are in the clinic yet).
Pretty interesting company, one that we’ve heard name-dropped by a couple other pundits over the past year or so as it ramped up… and it has now come down a bit off the February highs, along with most growth stocks (this ad from O’Dell is dated February 2021, during which month the price fell from about $200 to $140, and today it’s around $130), so how does the valuation look today?
Well, you’ll want to pinch your nose a bit — revenue growth has been strong, which is encouraging in a biotech world where revenue is often years in the future… but with a $6 billion valuation, the stock is also trading at well over 50X revenues, and each dollar of revenue is costing them a little more than $2. Analysts are guessing that revenues will double again by 2023, and they are getting progressively more efficient, with better gross margins and lower selling and R&D expenses as a percentage of revenue, but they’ll probably still be chewing through $100 million or so a year in cash for the foreseeable future, roughly as they are now (and there are only a couple analysts, to be clear, so don’t put much weight on those numbers).
The good news? They can afford to burn the cash to scale up the business, they raised a bunch of money last year (about $450 million), so they should be in good shape as long as they can continue to make traction with new customers and keep the revenue line rising. Whether or not the stock soars ever higher from here, I don’t know, and the science is beyond my pay grade… but they do have partnerships with a lot of large tech leaders (yes, including Illumina, also an early investor and strategic shareholder of Twist, they still own about 3.5% of the company, and Gingko, which is usually Twist’s largest customer), they do have a visionary leader and see a huge potential market for their synthetic biology products and testing equipment and services, and the potential to expand pretty quickly as they build their next factory facility in Portland over the next year or so… and, yes, they are a top-ten holding in Cathie Wood’s ARK Genomic Revolution ETF (ARKG), so they have gotten a fair amount of attention in the past few months.
Sound like your kind of stock? Ready to chase “Imperium?” Prefer larger and more established players like Illumina or Thermo Fisher, or the even-smaller startups that are coming up behind Twist? Think DNA is yesterday’s news and it’s time to move on to the proteomics stocks pitched a couple weeks ago? Let us know with a comment below.
P.S. Yes, I’m kidding about the DNA Friend endorsement. But that’s OK, they’re kidding too — still worth a look 🙂
Disclosure: Among the stocks mentioned above I own shares of Intuitive Surgical. I will not trade in any covered stock for at least three days, per Stock Gumshoe’s trading rules.