Hunting 10-baggers
Loftus Peak chief investment officer Alex Pollack says Roku could 10-bag. James Brickwood
While Pollack declined to name any life science companies in his portfolio for commercial reasons, he said $US12 billion ($18.5 billion) Nasdaq-listed streaming business Roku was one option for investors willing to take on more risk.
“It could 10-bag,” Pollack says. “I’m not saying it will, but it could. It’s got the makings of a 10-bagger. The traditional cable and pay-TV model is breaking down globally, and the new distribution centres are streaming platforms.”
Other professional investors such as Michael Frazis, the founder of Frazis Capital, are also poring over the life sciences and biotech space to find massive winners. Frazis, who studied chemistry at Oxford University and has a reputation for a daring investment style, says Nasdaq-listed Schrodinger is a market leader in applying AI to drug discovery.
“Schrodinger offers AI-software to research labs in academia and industry, and has a growing number of partly and fully owned programs where they progress their most promising candidates through trials,” Frazis says. “They’ve already had commercial success, receiving $147 million when Takeda bought Nimbus earlier this year.”
Schrodinger’s value is just $US2 billion today at a stock price of $US27.77, although Frazis argues it will rise as investors ascribe more value to its research pipeline. Another Frazis pick is Nasdaq-listed clinical services group Transmedics. Its technology allows organs such as the heart, liver or lungs to be transported at room temperature, rather than on ice in coolers.
“This significantly extends the window they can be used and expands the total amount of donor organs available,” he says. “The company sold off recently after purchasing aircraft. Long-term this was the right decision, as it allows the firm to create a US nationwide end-to-end organ transport system. They just announced 159 per cent year-on-year revenue growth, and positive operating income before acquisition-related costs.”
Frazis is also an investor in ASX-listed Curvebeam AI. It sells weight-bearing scanning machines to orthopedic surgeons, and he says it can use AI to help surgeons make better informed clinical decisions.
“Scanning patients while standing gives surgeons a better understanding of ligaments and bones, and allows orthopaedic practices to earn money from scans done in their own clinics,” says Frazis. However, the stock has been off to a rocky start since its float at 48¢. It was trading at just 32¢ on Wednesday.
Peter Phan, the Sydney-based founder of Castlereagh Equity, says an epiphany about medical technology’s potential to change business and humanity saw him intensify his research focus on DNA sequencing, synthetic biology, cellular engineering and machine learning businesses he believes could beat the market for the next 40 years.
Phan likes London-listed DNA sequencing business Oxford Nanopore.
“It’s rapidly gaining traction worldwide into a multibillion-dollar market,” he says. “The industry is dominated by Nasdaq-listed Illumina, which is currently doing $US4 billion of sales, compared to Oxford Nanopore’s £170 million ($327 million). In the near future, reading genomic information from living creatures, humans, animals, plants, bacteria, viruses, etc, will be widespread and routine, just like using smartphones and personal computers today. Oxford Nanopore is well positioned to play a major role.”
Phan also likes ASX-listed regenerative medicine business Avita Medical, which uses a spray formed from patients’ own cells to repair burns victims’ skin, or to treat common disorders such as vitiligo.
“After nearly 20 years of development, Avita’s Recell ‘spray-on-skin’ is fast on its way to becoming a component of standard of care in the US,” Phan says. “Under the new CEO, it’s growing revenue strongly, targeted to reach $US100 million within two years, selling into a multibillion-dollar market.”
AI and the internet
Other investors such as Nick Healy, a portfolio manager at Wilson Asset Management’s Global Fund, are looking beyond AI crowd favourites such as Microsoft and Google for businesses with more growth potential.
Healy names Nasdaq-listed cloud and desktop accounting leader Intuit as a stock to own. Its shares are up more than 40 per cent this year.
Wilson Asset Management’s Nick Healy likes Swedish property portal Hemnet. Louie Douvis
“We think there’s a lot more ability to grow earnings by upselling more value-added services, and we think they’re a big winner in AI,” he says. “They have a scale and distribution advantage, you want data, and you want clear use cases for co-pilots, and Intuit has all three.”
Healy also likes Swedish property portal Hemnet as a business with potential to deliver investors nosebleed returns.
“It’s like Sweden’s REA Group,” he says. “It has a dominant market position at 90 per cent market share, but has less than one fifth of the revenue per listing than REA, so I’ve met with management, and it has a clear path to monetise over time.”
Stockholm-listed Hemnet was also named as a number one stock pick for growth by GCQ Funds Management portfolio manager Doug Tynan at Morgan Stanley’s investment conference in June 2023.