Finding undiscovered value
This is the main tactic of the Technology of the Future Fund. We search for the discrepancy between stock price and value. Our aim is to find a “diamond in the rough” and buy it before other market participants. Usually, these stocks can be found in the small and micro-cap universe. The majority are not members of any major stock indexes. Typically, discrepancy between price and value exists because of:
Lack of competence of market participants in highly specialized segments like Biotech or IT.
Short term thinking by market participants. Sometimes it takes time for a new, breakthrough technology to be adapted by the industry. In addition, investors who lack patience avoid or sell stock in companies where business development is slower than consensus expectations. This is the case with certain industrial automation technologies/solutions in the market today. Although some solutions offer cost cutting by 30-50%, it takes time for major industrial enterprises to change their production processes and optimize supplier operations.
Institutional constraints. The company may be too small, or its liquidity might be poor.
In principle we like stocks which are not yet on the radar of large institutional investors. Good examples of undiscovered values in our portfolio in the past include the following.
Translate Bio (+100% return in our portfolio in 2021) is a clinical-stage US biopharmaceutical company developing new generation messenger RNA (mRNA) based vaccines to save human lives. The company’s approach is to instruct cells in the body to make specific proteins that then produce an immune response. The key factor behind the success of mRNA technology is that it “turns on” sleeping genes. On Aug 3, 2021, French Biopharma giant Sanofi agreed to buy the company for $3.2 billion.
Macrogenics (+230% return in our portfolio in 2020) is a clinical-stage US biopharmaceutical company focused on discovering and developing monoclonal antibody-based therapeutics for the treatment of cancer, as well as various autoimmune disorders and infectious diseases.
Compugen (+100% return in our portfolio in 2019) is an Israeli therapeutic discovery company. The company's pipeline primarily consists of early and preclinical stage immuno-oncology programs based on drug targets discovered by the company, primarily immune checkpoint and myeloid protein target candidates.