One FTSE 100 stock has plunged by 48% since I invested (twice!) last year, while the other is down 61%.

I’m now left wondering whether I should cut my losses and invest elsewhere.

A potential six-year wait

First up is Ocado (LSE: OCDO). Shares of the online grocer have fallen by a shocking 55% year to date.

This makes it the worst-performing Footsie stock of 2024, and it isn’t even close. In second-bottom place is St James’s Place, whose shares are ‘only’ down 29% year to date.

With a market cap of just £2.8bn, Ocado could soon be relegated to the mid-cap FTSE 250.

I invested because I’m bullish on its technology and robotic unit, which helps power the online operations of global grocers, including Kroger and Japan’s AEON.

Indeed, Ocado now has partnerships in seven of the world’s top 10 online grocery markets. This Technology Solutions division grew 44% in its last financial year.

However, the overall group remains unprofitable. It logged a £403m pre-tax loss last year. And its chief financial officer said it is expecting to make a pre-tax profit in the next six years.

Wow. That’s a long wait for potential profits, one which investors have clearly baulked at.

A misfiring business model

The second stock is Ginkgo Bioworks (NYSE: DNA). Shares of the synthetic biology company are down 71% in the past two years.

For those unfamiliar, Ginkgo programmes microbes on behalf of its customers. These include Novo Nordisk, Pfizer, and Merck.

Like Ocado, the firm is deeply unprofitable. It lost $178m in Q1. And while it added 17 new cell programs, representing 31% growth over the prior year, its $38m in revenue missed estimates by $8m.

Meanwhile, it lowered its full-year cell engineering services revenue guidance to $120m-$140m. That would be $1m year-on-year growth, at best.

For context, when the firm went public in 2021, it expected $628m from this segment.

This tells us the business model isn’t working. If you’re adding more programs from big pharma customers, but your revenue isn’t growing, then that is a serious problem.

To address this, management is cutting costs and changing how its contracts are negotiated.

One saving grace is that the company still had a $840m cash position at the end of the quarter. It is targeting adjusted EBITDA breakeven by the end of 2026.

Given the dreadful execution so far though, I’m not holding my breath.

Weeds and flowers

Warren Buffett is fond of quoting an analogy used by Wall Street legend Peter Lynch: “The weeds wither away in significance as the flowers bloom. Over time, it takes just a few winners to work wonders.”

Fortunately, along with these duds, I have stocks like Axon Enterprise, Games Workshop, and MercadoLibre. All have been wonderful long-term winners for me.

These flowers more than make up for the weeds!

Another Peter Lynch quote comes to mind here: “Selling your winners and holding losers is like cutting the flowers and watering the weeds.”

As things stand, I certainly won’t be watering these portfolio losers. In fact, I’m tempted to pull them out and invest in stocks with better prospects.

The post My Stocks and Shares ISA has two giant weeds in it. Should I pull them out? appeared first on The Motley Fool UK.

I’ve been hunting for shares that could replicate this kind of performance. Here’s one potential contender — down 48% since I first invested — that I’d consider buying at $1 today.

Programmable DNA

The stock is Ginkgo Bioworks (NYSE: DNA). Since going public in 2021, it has endured a torrid time, falling around 90%.

This is a synthetic biology company that engineers cells for its customers. Its automated biofoundry is built on software, laboratory robotics and artificial intelligence (AI).

The potential applications of synthetic biology range from biodegradable plastic and lab-grown meat to drought-resistant crops and novel antibiotics.

Indeed, a start-up called Light Bio used Ginkgo’s platform to put DNA from luminous mushrooms into petunias to make them glow in the dark. I’m after buying some of these cool plants myself!

The TSMC of biology?

Essentially, the company is attempting to become in biology what Taiwan Semiconductor Manufacturing (TSMC) is to the global chip industry.

Tech firms utilise TSMC’s state-of-the-art foundries and this has enabled some to scale spectacularly.

Take Nvidia, which has become a $2.2trn company without manufacturing its own chips. Instead, it outsources this to TSMC, which itself is a $640bn colossus.

Today though, such infrastructure doesn’t really exist in healthcare. Most companies still have their own in-house labs filled with scientists running experiments. Ginkgo’s platform enables these firms to reduce R&D cycles and scale faster.

It makes money through a combination of upfront fees, milestone payments, royalties and equity. It could eventually receive around $2.4bn in potential downstream royalty payments.

Financial performance

In 2023, it added 78 new cell programmes, up from 59 in 2022. And its expects to add another 100-120 this year.

However, revenue fell 47% last year to $251m, due to declining Covid tests. And its loss from operations was a massive $864m (including stock-based compensation).

Lower losses are expected in future as it scales. Meanwhile, it finished 2023 with $944m in cash, reducing any immediate liquidity concerns.

On 10 April, the firm announced an extension of its partnership with healthcare giant Novo Nordisk for up to five years.

Such deals validate the quality of Ginkgo’s platform and many of its customers are leaders in their respective industries.

After nearly 20 years of engineering cells, the company has accumulated mountains of biological data. It has just created a service offering this data to firms building AI models. This could juice the top line.

Looking ahead, analysts forecast strong revenue growth.

Uncertainty

Where do I think the next amazing revolution is going to come? And this is going to be flat out one of the biggest ones ever. There’s no question that digital [synthetic] biology is going to be it.

Jensen Huang, co-founder and CEO of Nvidia

Despite its shares trading for $1, Ginkgo still has a $2.1bn market-cap. This gives the stock a price-to-sales (P/S) multiple of 8, which isn’t exactly cheap. So this is a high-risk, high-reward stock.

But if Ginkgo can reignite revenue growth and prove its AI-powered business model works, then I think it can mimic the share price growth of Nvidia in the coming years.

The post 1 growth stock to consider buying at $1 that could be the next Nvidia appeared first on The Motley Fool UK.

The stock I’m talking about is Ginkgo Bioworks (NYSE: DNA). Here’s why I’m bullish.

A cell-programmer

Ginkgo Bioworks is a synthetic biology company that aims to program cells as easily as we can program computers. Its bio-engineering foundry helps its customers make everything from fragrances and biodegradable plastics to plant-based foods and cannabis products.

The thing I like here is that Ginkgo doesn’t create its own products, meaning its platform is agnostic.

That’s why it currently has program partnerships with the likes of Moderna and Pfizer (rivals to each other). And it just signed a drug-discovery collaboration with the latter worth up to $331m in fees and milestone payments, with further potential for royalties.

Potentially powerful business model

The company’s cell-engineering foundry is a highly automated laboratory powered by robotics and software. So that means there aren’t many scientists holding pipettes at workbenches.

Indeed, the firm claims its automation produces 10 times the output of scientists working by hand. This means there is significant potential cost and efficiency gains for companies outsourcing research and development (R&D) to Ginkgo. And this should attract more customers and R&D spending to its platform.

Additional programmes will also increase Ginkgo’s vast ‘Codebase’ of biological data used to program cells. It added 21 new programmes to its platform in Q2, with companies including Sumitomo, Novo Nordisk, and Merck. It intends to add 100 new ones in total throughout 2023.

As well as charging customers upfront, the firm is entitled to potential further downstream value in the form of royalties on sales.

Of course, in the case of the dozens of start-ups that also use its platform (in which it takes equity stakes), there’s a risk those products never materialise.

Big risks

Now, the company remains deeply unprofitable, meaning its business model is still unproven.

It expects total revenue of between $245m and $260m this year, down from $477m last year as various Covid-testing revenue disappears. But it has burned through $297m of cash over the last 12 months. The risk here is that the firm never scales up fast enough to make a profit.

Plus, trading on a price-to-sales (P/S) ratio of 10, the shares are far from cheap, even at the equivalent of £1. So this is a highly speculative stock that isn’t suited to risk-averse investors. And I’m aware this one could flop badly (even more than it has already).

Nevertheless, I see a lot of long-term potential here. And I’m intrigued by a recent deal Ginkgo announced with Google Cloud to develop large language models for bio-engineering purposes.

The aim is for this artificial intelligence system to learn to speak DNA just like ChatGPT learned English. The eventual applications here could be far-reaching.

Finally, I note that the stock is currently worth nearly 2.5% of ARK Invest’s various portfolios. And it has been held by Scottish Mortgage Investment Trust for a number of years.

So the firm has smart backing, as well as a remaining cash runway of $1bn.

The post One growth stock I just can’t stop buying at £1 in my ISA! appeared first on The Motley Fool UK.

Airtel Africa

What it does: Airtel Africa operates mobile networks and offers digital money services in a range of African markets.

By Christopher Ruane. The strong growth prospects for its digital payment business recently led me to invest in Airtel Africa (LSE: AAF).

With its large user base and powerful position in large African markets, I think the firm is set to benefit from high demand for mobile and data services as well as booming digital payment use. That ought to be excellent for the business, which in the first nine months of the year made a post-tax profit of $523m and generated almost $1.5bn in free cash flow at the operating level.

Net debt of $3.6bn is higher than I would like. I also think there are political risks due to the company’s heavy focus on a few markets in Africa.        

However, I think the share price reflects those risks. With Airtel Africa trading on a price-to-earnings ratio of 8, I added it to my portfolio this month.

Christopher Ruane owns shares in Airtel Africa.

Anglo American

What it does: Anglo American is a major producer of various base metals and bulk commodities.

By Andrew Mackie. Over the last month, I have been very active in the stock market, snapping up shares in commodity-related businesses. One company that has sold off hard recently is mining giant Anglo American (LSE: AAL).

Its dividend policy of paying out 40% of underlying earnings is certainly very attractive to me. But it’s not the main reason why I like the stock. Significant macro trends lead me to believe that today’s price represents an absolute bargain.

Among all the talk about the transition to a cleaner, greener economy, what most people fail to appreciate is this will be nothing but a pipe dream unless significant capital investment flows into the mining industry.

Copper is a key metal in our journey to net zero. However, expansionary capex across this industry is heading in the wrong direction. As much as the deficit is talked about, existing prices don’t reflect this reality. In other words, there is no incentive for the likes of Anglo American to bring new supply online.

On top of that, we have increasing urbanisation as well as an emerging trend toward onshoring manufacturing capability to beef up supply chain security. All in all, I believe we are heading into a world of scarcity and that can be nothing but positive for Anglo American.

Andrew Mackie owns shares in Anglo American.

Ergomed

What it does: Ergomed provides specialised services to the pharmaceutical industry, helping companies with their clinical trials.

By Edward Sheldon, CFA. I recently added Ergomed (LSE: ERGO) shares to my portfolio after they fell from near 1,400p to around 1,000p. I see the stock as a good way to get exposure to the healthcare industry.

Ergomed’s recent full-year results showed that the business is performing well right now. Last year, the group generated revenue of £145.3m, up 22.5% year on year. And at the end of 2022, its order book was sitting at a record high £295m.

“As we look ahead to 2023, demand for our services is high,” commented executive chairman Dr Miroslav Reljanović.  

One risk here is that Ergomed’s biotech customers could be impacted by tighter financial conditions. This could affect the company’s growth in the short term.

Taking a long-term view, however, I’m confident in the growth story. Over the next decade, the global drug discovery market is projected to grow by around 9% per year.

Edward Sheldon owns shares in Ergomed.

Forterra

What it does: Forterra is a UK brick manufacturer. It makes the London Brick, which features heavily in UK housing stock.

By Stephen Wright. Buying shares in a brick-manufacturing company as the UK property market has been faltering might seem like a strange decision. But I’ve got a plan.

Over the last 12 months, shares in Forterra (LSE:FORT) have fallen almost 20%. As a result, they’re almost back at their pandemic prices. 

The immediate future does look choppy for the business, but I think the longer-term outlook is much more promising. So I’ve been looking to seize an opportunity to buy shares now to hold for a long time.

Forterra operates in an industry where demand routinely outstrips supply. As a result, around 20% of the bricks used in UK housebuilding are imported .

The company has been investing in expanding its manufacturing in order to exploit this imbalance. And I think it can do a solid job for some time, which is why I’ve been buying the stock.

Stephen Wright owns shares in Forterra.

Ginkgo Bioworks

What it does: Ginkgo Bioworks operates a platform that designs and genetically engineers microorganisms for a wide range of industries. 

By Ben McPoland. I’ve recently been buying shares of Ginkgo Bioworks (NYSE: DNA). This is a Bill Gates-backed stock that’s down 88% in 18 months. It’s still years away from profitability. One share is now $1.32.

So why on earth have I been investing? Well, Ginkgo is a market leader in the revolutionary field of synthetic biology. But it doesn’t develop its own drugs or products. Instead, it operates a state-of-the-art cell engineering ‘Foundry’ for other companies to use. Its customers are from industries as diverse as biopharma, cannabis, food, agriculture and energy.

In that sense, it’s a bit like Amazon Web Services, but for the natural world. Its business model is unique (though admittedly unproven and therefore risky), involving a mix of upfront fees, milestone payments, royalties, and equity stakes in its customers.

Operating at full scale, this could be a wildly profitable enterprise. The applications of engineering biology are almost endless.

Last year’s revenue of $478m was 52% higher than 2021. It has a cash balance of $1.3bn. 

Ben McPoland owns shares in Ginkgo Bioworks.

Legal & General Group 

What it does: Legal & General offers a wide range of financial services including life insurance, pensions and annuities.  

By Royston Wild. Legal and General Group (LSE:LGEN) offers brilliant value from a growth and income perspective. So I decided to open a position in the FTSE 100 insurer following heavy share price weakness in March. 

Today its shares trade on a forward price-to-earnings (P/E) ratio of 7.3 times. This is around half the average that FTSE index companies change hands on. 

Meanwhile the company’s prospective dividend yield sits at 8.3%, comfortably above the 3.6% blue-chip average. 

I’m especially drawn to Legal and General because of its healthy capital position. The business throws out massive amounts of cash, and this gives it the scope to pay big dividends year after year.  

Cash generation rose an impressive 14% in 2022 to £1.9bn. And it had a CET1 capital ratio of 236% at the end of last year, an all-time high. The firm’s robust balance sheet also gives it plenty of scope to grow earnings though organic investment and acquisitions. 

Royston Wild owns shares in Legal & General Group. 

PayPal

What it does: PayPal is one of the largest fintech companies in the world. It’s the leader in the digital wallet space outside of China and hosts over 400m active accounts worldwide.

By John Choong. With the NASDAQ on the verge of entering a new bull market, one would expect growth stocks like PayPal (NASDAQ:PYPL) to start rising too. However, the stock has been lagging behind with a meagre gain of just 1% this year.

Recession fears, competition from Apple, and slowing user growth all have parts to play in PayPal’s depressed valuation. And while those fears are valid, it shouldn’t discount the company’s own potential either. The tech group continues to innovate en masse, which should see user adoption increase along with the ever-growing shift of consumer spending towards e-commerce.

What’s more, management has guided for a rather positive year ahead. Given the firm’s track record of beating estimates, I’ve got a decent amount of confidence that it can deliver another set of excellent results. More importantly, the board continues to manage capital effectively given its healthy debt-to-equity ratio of 53%. Thus, with its valuation multiples sitting near a decade low, I’ve added to my position.

John Choong has positions in PayPal.

Primary Health Properties

What it does: Primary Health Properties leases 513 facilities to various providers in the UK and Ireland.

By Mark Tovey. Real Estate Investment Trusts have taken a tumble over the last year, with iShares UK Property UCITS ETF down 30%.

I’d be worried about investing in trusts that own blocks of flats, office space or shopping malls in case rent defaults spike.

But because 90% of the rent roll of Primary Health Properties (LSE:PHP) comes from the UK and Irish governments on inflation-indexed leases, I think the default risk is exceptionally low.

The downside is that a shake-up in NHS policy could see local health authorities forced to scrimp on the amount of space they rent, for example.

Regardless, I bought Primary Health Properties shares this month. What tipped the scales for me was the company’s 26 consecutive years of dividend growth.

The dividend yield is 6.2%. If it can maintain its record of growing that payout, my annual return as a percentage of the initial investment could one day climb to double figures.

Mark Tovey has shares in Primary Health Properties.

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