The word “uncertainty” tends to get overused by market commentators, but that is definitely what stock investors are facing right now. Economists don’t seem to be able to agree if we are in a recession, let alone if we are headed for one, as prices keep climbing. There are mixed signals all around. Consumers are still spending, and the jobs market is tight, but growth is slow to negative, and the housing market is dropping alarmingly. Market sentiment is therefore dependent on the Fed. Will they continue to tighten, and if so at what pace? Or will they “pivot” to slower hikes with an end in sight, and wait and see what the rate changes to this point have done to inflation? The problem is, the FOMC themselves don’t seem to know the answer to that question themselves. “Data dependent” sounds like a good thing until you realize it just means “We don’t know yet.”
So, what is a stock investor to do? Should you be buying the big tech, growth names that have been hit the hardest as the air has come out of the post-pandemic bubble? Or do you trust stocks that benefit from inflation and global chaos, such as energy, materials, and defense companies?
If you have a firm view of what you think the Fed will do over the next few months, then invest appropriately, by all means. If. On the other hand, you are like me and don’t, it is a good time to look at things that, while some may be risky, exist outside the influence of interest rates and growth. At times like this, I take particular interest in things like biotech and game-changing disruptive tech: where a company's fortunes are not related to economic activity, or at least not directly.
So, when I see a young company that fits both descriptions, bringing disruptive technology to biotech, it inevitably piques my interest. That is what Acrivon Therapeutics (ACRV), a company whose stock started trading on the Nasdaq less than a month ago, appears to be.
They are in the now somewhat crowded oncology field, but seem to have an, as yet unproven, advantage over others. If their Acrivon Predictive Precision Proteomics (AP3) platform works as predicted, it will enable them to produce therapies targeted to patients based on their receptivity, rather than to specific mutations of cancer cells. Early signs are good, with their lead candidate, ACR-368, entering Phase 2 clinical trials.
Investing in something this revolutionary at such an early stage is, of course, very risky, so the stock should only form a very small part of anyone’s portfolio, but the potential upside is so big should ACR-368 prove effective, and especially if AP3 were adopted more widely as a result, that it is worth the risk. The impact of that would be diluted somewhat by a licensing agreement with Eli Lilly (LLY), but that lends some legitimacy to the project and would also give access to the resources needed to ramp up quickly and effectively.
As for entry point, now would seem to be a good time to buy ACRV. It has followed the pattern that IPOs often do, with an initial spike followed by a drop back to roughly the offering price. That is a function of investment bankers doing their job well, pricing the IPO to reflect the real value of the company, but also create excess demand. That excess demand causes the initial pop, but then the stock inevitably finds its real level quite soon thereafter. ACRV, for example, was priced at $12.50 for the offering, jumped to a high of $20.70 on the second day of trading, and closed yesterday at $12.53.
As I said, this is not an “all in” kind of stock. It is something to consider for a small portion of your portfolio and is one of those “set it and forget it” things that you buy and leave alone. However, in a time when uncertainty dominates the market, it is something with potential that is unaffected by the Fed, OPEC, or Russian aggression and, as such, is a useful tool for diversification if you are not particularly risk averse.
* In addition to contributing here, Martin Tillier works as Head of Research at the crypto platform SmartFI.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Martin Tillier
Martin Tillier spent years working in the Foreign Exchange market, which required an in-depth understanding of both the world’s markets and psychology and techniques of traders. In 2002, Martin left the markets, moved to the U.S., and opened a successful wine store, but the lure of the financial world proved too strong, leading Martin to join a major firm as financial advisor.
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