One great way to learn how to become a better investor is to watch how the best in the business invest their money. By taking a closer look at what they’re buying, investors can see what attracted them to these stocks. They can then apply their learnings to improve their own stock-picking process.
Three stocks that some of the top investors in the world are buying these days are small-cap biotech…
Biotech’s brightest star
George Budwell (Axsome Therapeutics): This year, several of Wall Street’s top investors have been buying large chunks of Axsome Therapeutics, a clinical-stage biotech developing novel treatments for central nervous system disorders. In the most recent quarter, for example, Julian and Felix Baker of Baker Bros. Advisors, as well as Kenneth Griffin of Citadel Advisors, bought sizable stakes in this small-cap biotech. Not surprisingly, this surge of interest from Wall Street’s super-investor class has coincided with a sharp rise in Axsome’s share price in 2019. At its peak, the biotech’s shares had risen by a staggering 750% over just the first five months of 2019.
What’s all the fuss about? Axsome has two high-value drug candidates in late-stage development — each of which could produce blockbuster-level sales. The company’s lead candidate, AXS-05, is being developed as a first-in-class treatment for treatment-resistant depression, major depressive disorder (MDD), agitation associated with Alzheimer’s disease, and smoking cessation. The drug was granted fast track status by the Food and Drug Administration for its treatment-resistant depression and agitation associated with Alzheimer’s disease indications, and breakthrough therapy designation for MDD. These coveted regulatory designations could speed up the drug’s regulatory review in a big way — that is, in the event that it succeeds in late-stage testing.
In addition, Axsome hopes to throw its hat into the high-value migraine market soon with its candidate AXS-07. The migraine headache space has seen a number of recent drug approvals, but that doesn’t mean that AXS-07 can’t carve out a profitable niche in this multibillion-dollar-a-year space if its late-stage trial goes as planned.
Should retail investors also buy into this compelling growth story? The long and short of it is that Axsome’s near-term fate depends entirely on the clinical success of AXS-05 and AXS-07. The trial data so far have been encouraging for both drugs, but this is a risky growth play nonetheless. Therefore, retail folk may not want to go hog wild with this prerevenue biotech stock just yet. A smallish position might be a good idea based on how this story is unfolding, but this developmental biotech stock arguably shouldn’t make up a disproportionate amount of your portfolio at this stage. Clinical trials, after all, are an inherently risky endeavor.
The Oracle eyes Amazon
Rich Duprey (Amazon.com): When Warren Buffett speaks, people listen, and when he opens his wallet to buy a stock, legions of investors follow suit. While running like lemmings anytime any guru makes a move is not smart, when Berkshire Hathaway (NYSE:BRK-A)(NYSE:BRK-B) buys stock in Amazon.com (NASDAQ:AMZN), there’s good reason to take notice.
First, a caveat. It wasn’t Buffett himself who made the purchase, but rather one of his two other investment managers, Ted Weschler and Todd Combs. Still, Buffett himself has said he admires Amazon and made a mistake in not buying it before.
The most recent SEC filing by Berkshire shows the holding company bought over 483,000 shares at a value of more than $860 million. It’s a sizable investment, but not nearly one of the portfolio’s biggest (that would be Apple at around $46 billion). Yet there are a number of good reasons why it should be in Berkshire Hathaway’s portfolio, and perhaps yours.
Amazon, of course, is the dominant e-commerce platform accounting for a third of all online retail transactions in 2018, but the cloud computing platform Amazon Web Services is where the real profitable action is. AWS is becoming a larger percentage of Amazon’s total sales, and it offers much higher profit margins.
Amazon is also becoming a potent advertising force as ad managers switch hundreds of millions of dollars to Amazon from current leaders Google and Facebook. The threat has Google responding by showing more shopping ads across its platform in a bid to undercut Amazon.
The e-commerce giant is a massive enterprise that touches…
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