In the aftermath of last month’s failure of Silicon Valley Bank and the resulting banking crisis, economists and market experts are now turning their attention to the bigger picture, and unfortunately, the outlook is bleak.
Cathie Wood, founder and head of ARK Investment, has pointed out that the velocity of money is slowing, and the odds of a ‘hard landing’ are rising.
In her view, we’re more likely to see the economy take sharp downturn in the near future, caused by a confluence of high interest rates, a deceleration in the movement of money through the economy, and worst of all, a tightening of credit while banks are facing a crisis of solvency.
“The Fed has made a big mistake. Credit default swaps have been warning us about a coming banking crisis since January 2022… We’re moving from a liquidity crisis to an insolvency crisis. A liquidity crisis is abrupt, with bank runs, and those seem to be under control. When it comes to solvency, these banks still have problems. The first problem is what everybody now understands — an interest-rate mismatch… this will bleed out over earnings,” Wood opined.
Even though Wood is preparing for the worst, she’s not abandoning the stock market. Recently, Wood has been loading up on two stocks that fit a certain profile; they offer game-changing potential and which might just be too cheap to ignore – both are currently changing hands for under $5. According toTipRanks, the world’s biggest database of analysts and research, both also feature robust triple-digit upside potential, indicating the possibility to double or more going forward.
Butterfly Network (BFLY)
The first of Wood’s choices is Butterfly Network, a medical technology firm that operates in the ultrasound niche. While ultrasound technology has been long-known in medical imaging, Butterfly has taken it to a new level by specializing in the development of portable, handheld ultrasound scanner technology. They leverage the miniaturization made possible by modern semiconductor chips to create ultrasound imaging systems that are easier to use, more accessible, and lower cost than older systems.
Butterfly’s systems are currently available in the US, Australia, the UK, and much of Europe, where they are earning a solid reputation for quality. The systems have found use in a wide range of medical applications, from its traditional strongholds of OB/GYN and cardiovascular care to ER rooms and nursing care – and even to primary care offices and veterinary hospitals.
Butterfly recently achieved a significant milestone by obtaining FDA clearance for its AI-enabled lung imaging tool earlier this month. The Auto B-line Counter can potentially transform the way that medical professionals perform evaluations on adults with possible diminished lung function, allowing for faster diagnosis and treatment. The system, based on machine learning, was trained through access to a database of more than 3.5 million anonymized ultrasound images.
While this FDA approval bodes well for Butterfly, the company’s recent 4Q22 quarterly report was a mixed bag. Revenue, at $19 million, was essentially flat year-over-year, but it fell short of the Street’s estimate of $19.93 million. On the other hand, the EPS loss of 17 cents per share was better than the analysts’ predicted loss of 22 cents per share for Q4.
The result is a stock down 41% over the past 12 months.
Cathie Wood must see plenty to like here. Via her ARKG (ARK Genomic Revolution) fund, she has purchased 3,741,000 shares just this month. That brings Wood’s total holding of BFLY to more than 12.9 million shares, currently valued at $31.86 million.
Reflecting Wood’s positive stance, Cowen analyst Joshua Jennings lays out the bull-case.
“BFLY made significant progress in each of its four strategic growth pillars throughout 2022 and is now better positioned to capitalize on the high growth handheld u/s market opportunity in 2023 and beyond. 2023 revenue growth guidance implies ~20% growth at the midpoint and reflects a building sales funnel and the impact of new commercial strategies over the course of the year,” Jennings opined.
Kumar adds an Outperform (i.e. Buy) rating to his commentary, and completes his stance with a $6 price target, indicating his confidence in an upside of 143% for the next 12 months. (To watch Jennings’ track record, click here)
Overall, the 4 recent analyst reviews on this stock include 3 Buys against a single Hold, giving BFLY its Strong Buy consensus rating. The stock is currently trading at $2.47 and its $5.06 average price target implies ~105% upside potential by the end of this year. (See BFLY stock forecast)
SomaLogic, Inc. (SLGC)
For the second of Wood’s picks, let’s turn to SomaLogic, a clinical diagnostics company that is focused on proteomics, the large-scale study of proteins and their application to biomarker discovery. The Boulder-based firm offers a research platform that fosters the discovery of ‘effective and safer’ treatments, to improve diagnoses and patient outcomes. SomaLogic’s approach combines assay services with diagnostics, to create one of the world’s most extensive clinical proteomic databases.
Through its work with proteins, SomaLogic’s research into proteomics has potential to revolutionize the precision medicine niche. The company is working to address unmet medical needs in a wide variety of disease conditions, and its work is applicable to medical professionals in direct care delivery, research, and even data analytics.
In a development that investors will watch carefully, SomaLogic last month announced a set of changes to its upper levels of managements. These included the appointment of four new members to the company’s Board of Directors, including Jason Ryan to the post of Chairman of the Board. In addition, SomaLogic also announced that Adam Taich, formerly Exec VP of Life Sciences, has filled the position of interim CEO. The company’s previous CEO, Roy Smythe, stepped down effective March 28.
At the same time the company announced its sweeping management changes, it also released financial results for the fourth quarter and full year of 2022. At the top line, quarterly revenue was down 18% to $18.8 million – although this figure beat the forecast by $1.77 million, or 10%. At the bottom line, the firm’s Q4 income, its GAAP EPS, came to 26 cents per share. This was a whiff on two counts; coming in well below the 16-cent EPS loss reported in the year-ago quarter, and missing the forecast by 5 cents.
The stock has experienced a brutal decline of 60% over the past 12 months. Cathie Wood, however, must think the healthcare disruptor offers good value right now. She’s picked up 1,422,263 shares in the last two weeks, making the buys through the ARKG fund. She now has a total holding in SomaLogic of 11,810,923 shares, currently valued at $32.24 million.
Wood is not the only bull here. Canaccord Genuity analyst Kyle Mikson has taken an upbeat outlook here, writing: “In our opinion, SomaLogic appears poised for solid revenue growth and improving profitability over time as the company benefits from its recent initiatives. The shares offer substantial potential upside to our price target.”
Quantifying this, Mikson gives the stock a Buy rating and a $5 price target implying an 83% upside for the next 12 months. (To watch Mikson’s track record, click here)
Overall, the Strong Buy consensus rating here is unanimous, based on 3 recent analyst reviews, all positive. The stock has a $2.73 trading price, and its $6.33 average price target suggests an upside of ~132% heading out to the one-year horizon. (See SLGC stock forecast)
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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.
