How Editas Medicine Could Make You Better (and Richer)

Over the course of The Motley Fool's 26-year history, one of its guiding principles has been to look for the positive side of the story. The best stocks, services, and stories have produced some of the best returns for investors. Those innovators don't always pay off fast, but that's OK -- when you buy and hold for the long term, you can afford to be patient. And speaking of patience -- or rather, of patients -- it's time for Rule Breaker Investing host David Gardner to pick another of his five-stock samplers, and this time, his theme is medical miracles. Each company he's recommending has big potential to cure a condition that has thus far been incurable or to create new possibilities where none existed before.

By definition, that means that his picks this time may carry more risk than some of his prior recommendations. For every biotech breakthrough that makes it to market, there are many promising candidates that don't pan out. Still, three years from now, the Motley Fool co-founder expects that on the whole, this basket of stocks (all of which are all already active recommendations in his portfolio) will be beating the S&P 500 -- and saving lives, too.

Recommendation No. 3: Editas Medicine (NASDAQ: EDIT), an early-stage gene-editing company focused on CRISPR technology. If it works, CRISPR will allow medical professionals to snip out patients' faulty DNA and replace it with healthy DNA. There's also the possibility of this type of technology being used to improve even healthy people via gene editing. But that's still a big if, which is why ambitious Editas still sports a mere $1.2 billion market cap.

A full transcript follows the video.

10 stocks we like better than Editas MedicineWhen investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has quadrupled the market.*

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*Stock Advisor returns as of March 1, 2019

This video was recorded on April 3, 2019.

David Gardner: Stock No. 3. From a $120 billion company to a $9 billion company, now let's go to a sub-$2 billion company, Editas Medicine, ticker EDIT. Editas Medicine is capitalized at $1.2 billion as I tape this podcast on Tuesday, April 2nd, what I like to call the day after April Fool's Day each year. Editas has been a fascinating company and a stock to follow. I first recommended it about a year and a half ago. It was September 2017. The stock was at $20. It was exciting to watch it go from $20 up to $45. Six months later. Yep, that was last March. Right around this time, it had more than doubled. In the meantime, though, it came all the way back down. In fact, it briefly dropped below $20 before settling back to where it trades this week around $26. So yeah, this is a volatile stock. It is a small-cap. You could even say a micro-cap, especially within the world of medicine and medical technology.

Two things that I like about Editas Medicine. The first is, this is an early-stage leader in an important new technology. Please read about it. I know some of you know this better than I do, but it's called CRISPR. If you don't know what CRISPR is, just google it. You can read more about it on Editas' website, for example. And it does have a Wikipedia entry as a $1 billion company. This is an early leader in basically another approach to gene therapy, an efficient and highly effective way to go in and snip, snip, edit out a bad gene and put in a better one. In contrast to cancer immunotherapy, which is a little bit more mature today, even though it's still early days, CRISPR technology is way earlier than that. This is an example of the kind of stock that could blow up in the lab, blow up in our faces when we review this a year or two or three years from now. It's only a $1 billion company, and it's not even the only company purposed toward CRISPR.

But CRISPR is its own technology. Again, read more about it. You're going to see that if it works, it has the potential to really, again, effectively get there and edit just that one gene that needs to be taken out in order to cure you of this or make you better at that. By including "make you better at that," I open up the Pandora's box of possibilities of what this technology could do. Probably not every biotechnologist on Earth from now into the future will be just trying to correct severe genetic problems. No doubt some of them will be bad players that are trying to, in some way, make the genes theirs or those connected to them better or worse. This is a powerful technology.

It might not even work, by the way. CRISPR is still more the stuff of test tubes and laboratories than for-profit cash flow dynamics. But if the promise comes true, we are going to unleash on this earth, in the age of miracles, new possibilities in addition to new cures. People are going to have mixed feelings about that. I mean, if I could give you a better memory right now, and I could just give you a shot, and as a consequence, you would triple your memory capacity, would you take that shot? If you wouldn't, would you allow me to take that shot? I might be like, "Yeah, I sure would like to have a much better memory." So, there are, of course, moral, ethical implications to all of these things. The conversations have already started, and they'll probably never end.

My prediction is that this technology will be used for good. It will be used for augmentation beyond just curing. And that will lead to a better world, in fact, one that sounds a little bit like The Motley Fool's purpose to me -- a smarter, happier, and a richer world. We shall see. Whether or not Editas Medicine even brings that to you and me as a micro-cap company in the space with some early competition is not clear. Certainly not clear to me, it shouldn't be clear to you unless you are working with this technology. I know some of our Rule Breaker and Stock Advisor members are, in fact, because you've written me and let me know that you're working within this space. It's fascinating. I congratulate you on how exciting it is. So that's one thing I certainly like about Editas.

A second thing that I like about this, and I'm going to talk about this in the context of our five-stock sampler, a second thing I like about Editas is, it's our flyer stock. Out of these five, this is the one that's a really small market cap that has a really big dream. In my experience, these don't pay off the majority of the time. But if and when they do, they can be spectacular. It's probably a rare chance that Editas ends up being a $100 billion company. It has the potential. But in my experience, more often than not, that doesn't happen. Sometimes you do get a great stock; it's just not that great. Or you get a company that gets bought out by another larger company, as the big fish starts eating the guppies, the guppies with higher R&D budgets, really good technology, and talented engineers, but a bigger fish comes along and takes a liking to it, so you don't get to enjoy the full benefits of a company like this. We'll see. But, second thing I like here, I like that we're including a stock like this in our sleeve, in our five-stock sampler.

Well, what's one thing to watch for when you're thinking about Editas Medicine, if you're considering adding it to your portfolio and following the company? CRISPR. Keep an eye on that technology. If this is the first time that you're hearing that phrase, you should know it's an acronym. I can't actually produce for you the six letters that make up the acronym, but I'll tell you it's spelled CRISPR. This is the last podcast that's going to be giving you deep knowledge about CRISPR. We're staying at a high level here with this company, this stock pick. But I'll say this. Like I didn't know that much about robotic surgery when I first picked Intuitive Surgical in 2005, and I know more -- I'm still not in the field, but I know more. In fact, I've been in an operating room since and spent time with the surgeon and used the machine briefly myself. Maybe I'll have some analog-like opportunity in CRISPR in the future. When we're talking about what to watch with this one, you're going to want to watch the technology of CRISPR itself, see whether it works or not, see how the world feels about it and whether it's adopted. That's the obvious thing to look for for Editas Medicine.

David Gardner has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Editas Medicine and Intuitive Surgical. The Motley Fool has a disclosure policy.