It’s been a good year so far for Cathie Wood. Representing a significant turnaround after what can be described as a two-year post-pandemic downturn, her flagship fund ARKK Innovation (ARKK) is up 46% year to date, overshadowing the performance of major indexes.
That said, given Wood’s appetite for risk and outré, not all of the stocks that make up the various funds under the Ark Invest banner are doing well right now. Some have underperformed recently and look a little rough.
But it’s not as if Wood is known for her lack of conviction in her choice of titles. Even during times when her innovation-focused investing style went unappreciated, she still doubled down on stocks she believes in.
And it appears that’s what he’s doing. Recently, she loaded up on a couple of defeated names found among her holdings. But Wood isn’t the only one who sees better days for these stocks. Some Street analysts also seem to believe they are ready for a recovery. We decided to take a closer look at these stocks, and for a more complete view of their prospects, we ran them through the TipRanks database. Here’s what we found.
Recursive Pharmaceuticals (RXRX)
Wood is known to prefer a forward-thinking approach, and the first stock we’ll look at has a lot to offer. Recursion Pharmaceuticals is a biotechnology company that leverages cutting-edge artificial intelligence and machine learning technologies to accelerate the drug discovery and development process.
The company’s unique platform combines high-throughput automated biology, bioinformatics and data analytics to rapidly screen and evaluate thousands of compounds, discovering new therapeutic targets and drug candidates much faster than traditional pharmaceutical methods.
This data-driven approach is applied throughout its pipeline. Recursion has several drugs in clinical trials, including REC-994 in a Phase 2 clinical trial (SYCAMORE) for cerebral cavernous malformation (CCM). As of June, the study was fully enrolled, and the company expects a readout of Phase 2 trial data in the second half of next year.
Additionally, Recursion is advancing the Phase 2/3 POPLAR clinical trial of REC-2282 in patients with progressive NF2-mutant meningiomas. A preliminary evaluation of safety, tolerability, pharmacokinetics and efficacy of Phase 2 is also expected in the second half of next year.
Most recently, earlier this month, the company announced the completion of the Phase 1 study for REC-3964 for clostridioides difficile infection, in which the drug was well tolerated with no serious adverse events reported. Recursion hopes to launch a Phase 2 trial study in 2024.
The stock had made good use of its AI-fueled 2023 rally until the run-up hit a brick wall. The strong performance peaked in July, with shares down 47% since then.
Meanwhile, during the pullback period, Wood has been busy adding stocks to her position. Over the last 3 months, you have purchased 1,900,644 RXRX shares via your ARKG ETF and your total holdings now stand at 6,192,719 shares. These are currently worth almost $51.6 million.
The company is also collaborating with some industry giants in both the pharmaceutical and artificial intelligence worlds, as highlighted by Berenberg analyst Gaurav Goparaju.
“In addition to its active drug discovery collaborations with Roche-Genentech and Bayer, which, when combined, entitle RXRX to up to ~$13 billion in milestone payments, RXRX entered into a technology-focused collaboration with NVIDIA in Q2 . This unique collaboration leverages RXRX’s proprietary data with NVIDIA’s computing capability to develop foundational AI models in biology and chemistry. We believe this collaboration complements RXRX’s existing blue chip partnerships, providing cross-industry validation of its platform,” noted Goparaju.
“From our perspective,” continued Goparaju, “RXRX’s continued progress through its wholly owned pipeline (five in clinic) and commitment to platform development – as evidenced by recent acquisitions (e.g. Cyclica) and new partnership with NVIDIA – support our thesis is that the company’s platform, which uniquely leverages both digital biology and digital chemistry approaches, is highly differentiated in the drug discovery space.”
These comments bolster Goparaju’s Buy rating, while his $35 price target suggests the stock will post gains of a robust 318% over the next year. (To see Goparaju’s track record, click here)
Overall, RXRX claims a Moderate Buy consensus rating, also based on 3 Buys and Holds each. There are a lot of expected gains here; the average target of $16.83 implies that the shares will double their value in the coming months. (See RXRX Stock Predictions)
Roblox Corporation (RBLX)
The AI trend has driven bullish market sentiment in 2023, but a previously predicted trend has not materialized. Not long ago, all the talk was about the metaverse, and one of the companies that would benefit the most from its adoption was Roblox.
The online platform combines elements of gaming, social networking and user-generated content creation. Founded in 2006, Roblox has evolved into a vast virtual world where millions of users, predominantly children and teenagers, can play, create and share their games and experiences. At the heart of Roblox is its game creation system, which allows users to design and build their own games using Roblox Studio, a user-friendly development environment.
RBLX stock was actually enjoying the market spoils of 2023, but has recently come undone, having fallen 37% from its recent peak in July. Most of the decline came in the wake of the company’s second-quarter report.
While bookings of $780.69 million showed a 22% year-over-year increase and beat forecasts by $2.72 million, disappointing metrics were seen elsewhere. Average daily active users increased 25% year over year to 65.5 million, but fell just short of analysts’ forecasts of 65.8 million. Average bookings per daily active user fell 3% to $11.92, also just below consensus expectations. Additionally, net loss rose from a loss of $176.4 million in the same period a year ago to $282.8 million.
None of this seems to have deterred Wood. Through his ARKF, ARKK and ARKW ETFs, he has purchased 1,188,771 shares in the past 2 months and his total holdings now stand at 9,205,770 shares, with a market value of nearly $263 million.
Piper Sandler analyst Thomas Champion is also aware of the current problems, but believes the recent decline represents an opportunity.
“Unfortunately, earnings misses will not be treated lightly in this market, especially considering the valuation. But we remain believers in the story and now view the stock as at reduced risk following the sell-off… We continue to view RBLX as a unique asset investing in a great market and opportunity. Booking and engagement trends in the second quarter were generally positive. That said, we would have liked a higher commitment to leverage in ’24 versus the low double-digit margins from the call. We are constructive about advertising opportunities and see it as a near-term catalyst with nearly 20% of the top 100 experiences incorporating ads. We like the growth in the older cohorts and the improvements in COGS,” Champion said.
To that end, Champion rates RBLX shares Overweight (i.e. Buy), supported by a $45 price target. If that figure is reached, investors would be looking at gains of 53% in one year. (To see Champion’s track record, click here)
Most analysts agree with Champion’s assessment, although not all agree. Based on 12 Buys, 3 Holds, and 4 Sells, the stock receives a Moderate Buy consensus rating. The average target is $38.83, leaving room for 12-month returns of 33%. (See Roblox Stock Predictions)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.