Baron Funds, an investment management company, released its “Baron Discovery Fund” second quarter 2024 investor letter. A copy of the letter can be downloaded here. In the second quarter, the fund (Institutional Shares) declined 7.78% underperforming the 2.92% return for the Russell 2000 Growth Index. The lion’s share of negative attribution and 6.52% of negative performance of the fund during the quarter were attributed to the ten worst-performing equities. The firm believes downward movements are more technically tied to macroeconomic issues and the trading environment and could quickly revert. In addition, please check the fund’s top five holdings to know its best picks in 2024.
Baron Discovery Fund highlighted stocks like Exact Sciences Corporation (NASDAQ:EXAS) in the second quarter 2024 investor letter. Exact Sciences Corporation (NASDAQ:EXAS) provides cancer screening and diagnostic test products. The one-month return of Exact Sciences Corporation (NASDAQ:EXAS) was 30.38%, and its shares lost 26.60% of their value over the last 52 weeks. On August 22, 2024, Exact Sciences Corporation (NASDAQ:EXAS) stock closed at $59.06 per share with a market capitalization of $10.913 billion.
Baron Discovery Fund stated the following regarding Exact Sciences Corporation (NASDAQ:EXAS) in its Q2 2024 investor letter:
“Exact Sciences Corporation (NASDAQ:EXAS) has the best-in-class non-invasive colorectal cancer (CRC) diagnostic test. It is a stool-based test called Cologuard which produces $2 billion in revenue (over 70% of the company’s 2024 revenue). Cologuard is second in accuracy only to having a colonoscopy, which is the gold standard in diagnostics. However, many people dislike the uncomfortable colonoscopy prep (if you have done it, you know) and the invasive nature of the procedure. Exact Sciences is also the market leader in breast cancer recurrence testing with its Oncotype DX genetic test (used by 90% of U.S. oncologists due to its robust clinical evidence). We initiated an investment in the stock in the low $40’s during the second quarter (shares peaked at $158 in 2021 and traded as high as $100 in July 2023).
Exact Sciences’ stock price has fallen for multiple reasons including: (1) a surprise FDA advisory committee panel recommendation of approval of competitor Guardant Health’s blood based CRC test in June 2024 (label yet to be disclosed); and (2) the company’s increase in marketing expense beyond expected levels (which people fear will compress profit margins). It is not guaranteed that the Guardant test will receive FDA approval (the panel decision is a non-binding recommendation), and we do not yet know what the label for the test will be (how will it be allowed to be marketed for use for clinical diagnosis). We believe the threat of blood-based tests is overblown given they are far less accurate than stool tests (stage 1 cancer sensitivity for blood tests in the mid-50%’s versus Cologuard at about 90% for stage 1 (92% for all stages), and AA sensitivity in the low teens versus Cologuard at 42%). Should Guardant’s test gain full FDA approval, we suspect its label will warn that it is inferior on early-stage CRC detection to stool tests and colonoscopy. Moreover, the blood-based tests are far more expensive to run using NGS (next generation sequencers) versus Cologuard, which uses a cheaper technology called PCR. If the blood tests only gain reimbursement at the same level as Cologuard (for a three-year interval test), they might not be very profitable to run. The tests might be entirely unprofitable if they are needed every year (due to the lower accuracy) but reimbursed at only one-third of the level of Cologuard (to keep the overall costs at parity). We also believe that it is prudent for the company to increase its marketing spend to compete with blood tests and to capture as much of the greenfield CRC opportunity as it can. The additional benefit to Exact Sciences will be a robust nationwide salesforce to market additional tests in its pipeline including Cologuard Plus, Oncodetect (which is a cancer recurrence test that uses a new technology called MRD (minimal residual disease)), and potentially Exact Sciences’ own blood based CRC test (data is to be presented this year)….” (Click here to read the full text)
A research team in a laboratory discussing the results of a lab screening test for biomarkers.
Exact Sciences Corporation (NASDAQ:EXAS) is not on our list of 31 Most Popular Stocks Among Hedge Funds. As per our database, 37 hedge fund portfolios held Exact Sciences Corporation (NASDAQ:EXAS) at the end of the second quarter which was 48 in the previous quarter. In the second quarter, Exact Sciences Corporation (NASDAQ:EXAS) delivered $699 million in revenue, up 12% year-over-year. While we acknowledge the potential of Exact Sciences Corporation (NASDAQ:EXAS) as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as NVIDIA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
In another article, we discussed Exact Sciences Corporation (NASDAQ:EXAS) and shared Artisan Mid Cap Fund’s views on the company. In Q2 2024, Baron Opportunity Fund sold its holdings in Exact Sciences Corporation (NASDAQ:EXAS). In addition, please check out our hedge fund investor letters Q2 2024 page for more investor letters from hedge funds and other leading investors.
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Disclosure: None. This article is originally published at Insider Monkey.
