2 Penny Stocks Cathie Wood Just Bought

Penny Stocks Cathie Wood Just Bought: Cathie Wood’s ARK investment fund is known for taking positions on small-cap companies that have the potential to disrupt existing industries with cutting-edge technological innovations.

 

Naturally, this approach sometimes pushes Wood into the penny stock market, meaning any stock trading for less than $5 per share.

 

Recently, the well-known innovation investor loaded up on two biomedical penny stocks to the ARK portfolio. Here are the two penny stocks Cathie Wood just bought:

 

The first penny stock Wood has shown an interest in is SomaLogic (NASDAQ:SLGC). The biomedical firm has developed a proteomic platform capable of measuring over 7,000 individual proteins simultaneously from a single sample.

 

This platform could one day offer significant advantages in clinical and research settings over existing proteomic models.

 

Wood’s Q3 acquisition of over 11 million shares of SomaLogic demonstrates her strong bullishness on the company’s technology.

SomaLogic is a classic high-risk, high-reward biomedical stock. Trading well under $5 per share, the stock has a projected 12-month upside of over 320 percent.

 

In Q2, however, the company generated just $14.1 million in revenue and downgraded its full-year revenue outlook to $80-90 million.

 

In the same quarter, losses totaled $23 million. Gross margin also decreased year-over-year, dropping from 59 percent in Q2 2021 to 50 percent in 2022.

 

SomaLogic has also suffered from the seeming curse of companies brought to market by SPACs. The company was acquired late in 2021, bringing it to public trading for the first time. Since then, SomaLogic’s share prices have cratered by more than 70 percent amid a general bearishness on speculative tech and life sciences stocks.

 

Despite its obvious risks, SomaLogic has a good deal of potential. Its unique platform and pipeline of additional diagnostic tests give it a cutting-edge advantage in a rapidly expanding industry.

 

By 2030, the global proteomics market could be worth as much as $70.5 billion, representing a 13.5 percent CAGR over the next several years. If SomaLogic’s platform gains widespread clinical adoption, there’s a good chance the company could capture a significant portion of this growing marketplace.

 

SomaLogic is also a natural fit for Wood’s well-known strategy of investing in potentially disruptive small-cap companies. The company plans to further develop its current platform to be able to measure up to 10,000 proteins per sample in the coming years.

 

A series of strategic acquisitions are also planned to enhance SomaLogic’s usefulness in clinical practice. If all of these developments take place, there’s at least a possibility that SomaLogic could become the leading protein marker measurement platform for a variety of medical uses.

 

Next on Wood’s penny stock shopping list was ATAI Life Sciences (NASDAQ:ATAI). This startup pharmaceutical company is a leading contender in bringing ketamine treatments to market for those suffering from depression.

 

The company has also developed a range of potential treatments for other mental health disorders, several of which are currently in various stages of clinical trials.

 

Like SomaLogic, ATAI Life Sciences offers a potentially massive upside in exchange for similarly pronounced risks. The stock’s 12-month median price target is $20, an increase of more than 450 percent from its current price of $3.55.

 

Analyst price targets give the stock anywhere from 85 percent to 1,300 percent upside in the coming year, and ATAI boasts a unanimous buy rating from all 12 analysts currently covering it. The company, however, has yet to generate any revenue, and there is no guarantee that it will in the future.

What ATAI does have going for it is an impressive array of clinical trials in its development pipeline. Several of these were detailed in the company’s Q3 earnings report. Included in these were COMP360 and PCN-101, both targeting cases of depression that resist traditional treatments. Another treatment, dubbed GRX-971, showed promise in Phase 1 trials for treating anxiety disorders.

 

More so than SomaLogic, ATAI could be a risky proposition on Wood’s part. With no income and a cash stockpile that shrank from $362 million in 2021 to $304 million in the most recent quarter, the company is a highly speculative investment. This fact, however, has not stopped Wood from acquiring over 6 million shares in the startup.

 

This bullishness on Wood’s part is quite understandable, as ATAI is developing potentially lucrative treatments for both treatment-resistant depression and generalized anxiety disorder.

 

Successful development of solutions to these two increasingly common mental health issues would, of course, allow ATAI to generate large revenues and likely attain eventual profitability.

 

Other projects in ATAI’s pipeline, including a medication for schizophrenia-related cognitive impairment, could also add to these potential gains.

 

With that said, ATAI will need to gain regulatory approval for its pharmaceuticals before any of this potential can be realized.

 

The company’s net losses for the last fiscal year totaled over $167 million, and its return on equity was -57 percent. While Wood may realize huge returns if and when ATAI’s treatments gain FDA approval, the stock could also carry significant downsides if delays arise in the approval process.

 

While SomaLogic and ATAI Life Sciences clearly aren’t suitable for conservative investors, they may be attractive to highly risk-tolerant investors seeking asymmetric bets with large potential returns on disruptive biomedical innovations. SomaLogic is a slightly less risky option, though the potential returns on ATAI could be higher.

 

If you decide to invest in these companies, it’s probably a good idea to allocate only a small portion of your portfolio to them.

 

Even after the recent acquisitions, SomaLogic and ATAI make up just 0.19 percent and 0.14 percent of the total ARK ETF holdings, respectively. This allows ARK to realize potentially disproportionate gains if the companies succeed while insulating it from appreciable losses if the stocks fail to advance.

 

A similar risk management approach may be advisable in an individual portfolio containing these two high-risk, high-reward stocks.

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