Coronavirus-Driven Market Puts Emphasis on Pharma Stocks
As you’d expect during a pandemic, those who make medicine are among the best situated to eke out a profit, even as most other stocks tumble. Considering that gold and bonds and other traditional safe-haven investments are falling at the moment, many investors are looking for salvation—a place to make their money work for them amid the downturn.
And that, dear reader, brings us to pharma stocks. More specifically, two pharmaceutical stocks: Moderna Inc (NASDAQ:MRNA) and Gilead Sciences, Inc. (NASDAQ:GILD). They could potentially be two very strong winners in the current economy.
But first you need to understand the context.
I’m not a doctor, just a humble market analyst, and I called it wrong when I said the novel coronavirus (COVID-19) would blow over much like other outbreaks had in the past. Ebola, SARS, swine flu… each had its day in the sun, and each failed to register in most people’s lives.
COVID-19, however, is of a different breed. One obvious difference is that most of you are now, like me, isolated at home instead of out at work.
The coronavirus has forced people to live in self-imposed quarantine in their home, eschewing restaurants, sporting events, and theaters in a way that perhaps no one in living memory has seen before.
And with that stoppage, we’re seeing thousands of people lose their job as the economy grinds to a halt.
U.S. Treasury Secretary Steven Mnuchin recently told a group of Republican senators that the U.S. unemployment rate—without major government intervention—could reach 20% because of the coronavirus. (Source: “Mnuchin Warns Virus Could Yield 20% Jobless Rate Without Action,” Bloomberg, March 17, 2020.)
Mnuchin was reported to have said that the economic fallout from the coronavirus could be worse than the consequences of the 2008 financial collapse. Some are even arguing that this huge economic stoppage could lead to another Great Depression.
An economic stimulus package worth over $1.0 trillion is being discussed as the U.S. government scrambles to find tools to deal with the economic side effects of the coronavirus.
And with all those predictions, panic is spreading, not unlike the virus itself. It’s contagious. People are rushing to take their money out, as everything seems to be up in the air.
And here’s where I called it right: don’t panic.
The easy thing to do is join the herd and stampede away in the direction that seems the safest. That could mean stashing your cash beneath your mattress and waiting for all this to blow over.
But that would be a bad idea. Following the herd mentality in the stock market is a great way to lose out on potential profits.
Which is to say that this pandemic will be a passing thing. We’ll see the markets return to normal eventually. All the stocks that aren’t directly tied to the service or travel industries—like most of the tech stocks and others we feature on Profit Confidential—are probably going to soar in a big way.
But many will not want to play the waiting game. It is a viable strategy, of course, to hold or even buy back into certain companies and reap the rewards down the road.
But even in the current downturn, there are ways to make money in the near future.
And that brings us back to pharma stocks. With so many people concerned about how bad the COVID-19 pandemic will be, and how long it will last, there’s a prime opportunity to make a quick buck here.
They say when there’s a gold rush, sell picks and shovels. In a pandemic, sell medicine.
Pharmaceutical companies are looking to be the first to offer a vaccine or treatment for the coronavirus. They could make huge profits, as the entire world will hand over money for access to this medicine.
Now, one of my earlier fears (in terms of stock investing) was that the coronavirus pandemic would blow over before we had a chance to implement a vaccine or treatment. The process of testing and gaining approval for drugs, after all, is a long and arduous one.
But here’s the thing: the extremes that we’ve all undergone to prevent the coronavirus’s spread speaks to just how serious this pandemic really is. And a virus of this severity will require pharmaceutical companies to kick things into overdrive.
In this case, that means faster testing, and getting products on the market as soon as possible. The governments of the world are all eager to get a vaccine or treatment to the masses.
Now, of course, they still have to do their due diligence to ensure that the medication is safe, and that will take time. But compared to most other pharmaceutical drugs, the approval process for a coronavirus vaccine will be kicked into hyper-drive.
Which means we may soon see some pharmaceutical companies make huge profits—and thereby some pharma stocks will soar in value—in the coming months.
MRNA Stock & GILD Stock Rise
Two pharma stocks that have already jumped to the front of the race to find a treatment for COVID-19 are Moderna stock and Gilead Sciences stock.
MRNA stock climbed when e Moderna Inc submitted a vaccine to U.S. researchers for testing. (Source: “Biotech Company Moderna Says its Coronavirus Vaccine Is Ready for First Tests,” CNN, February 26, 2020.)
This vaccine is still about a year away from being approved, but during that time, there will be a number of tests and trials. With each successful trial—so long as COVID-19 remains a powerful threat—we can expect to see big gains from Moderna stock.
And that, of course, is something that veterans of the pharma stock market will be familiar with: a long process of trial after trial after trial, with each new event providing a catalyst for the stock to soar or dive.
It’s a volatile, hard market to play, but for those seeking profits in this economic downturn, it remains your best bet in the short term.
Gilead Sciences, Inc., meanwhile, saw its share price rise following news that the company’s drug “remdesivir” is showing signs that it may be able to treat the coronavirus.
An official with the World Health Organization (WHO) has lent solid credibility to Gilead’s efforts to combat the disease.
“There is only one drug right now that we think may have real efficacy and that’s remdesivir,” said Bruce Aylward, an assistant director-general with the WHO. (Source: “Gilead Sciences Drug Remdesivir May Help Treat Coronavirus Symptoms, According to WHO,” CNN, February 25, 2020.)
Chart courtesy of StockCharts.com
As can be seen on the above chart, both MRNA stock and GILD stock have enjoyed a strong 2020 as a result of the coronavirus pandemic.
And that growth will likely continue, so long as COVID-19 remains a dire threat and these pharma companies’ treatments remain viable.
But as you can see on the chart, even amidst these favorable conditions, the two pharma stocks have been volatile.
That’s simply how it is in the pharmaceutical stock market. There are ups and downs, as each new drug represents either a glorious success or abject failure.
In this situation, however, the stakes are several orders higher, as much of the world is eagerly awaiting some sort of breakthrough. Not to mention that governments will be opening their wallets to fast-track the whole drug development process, lest they risk another Great Depression.
So we have intense demand, and a lot of money pouring into the industry that’s looking to meet that demand. This creates excellent conditions for investor gains.
Of course, it’s a gamble because we can’t know if Gilead Sciences, Inc.’s and Moderna Inc’s drugs will be effective. It’s guesswork, pure and simple, but by investing at the right time, watching these companies, and keeping abreast of the news, investors could see massive profits.
That’s where Profit Confidential comes in: we’ll be keeping an eye on pharma stocks to see which one comes out on top and nets investors healthy profits. As mentioned earlier, right now, MRNA stock and GILD stock are the front runners in the race to create an effective vaccine or treatment, but that could change very quickly.
There are few industries in the stock market that are doing better after the coronavirus-driven sell-off. But one industry is sure to dominate the news for the foreseeable future: pharmaceuticals.
The pharmaceutical industry is going to be the most talked-about sector for weeks, if not months, as the coronavirus remains a threat.
Pharma stocks are sure to explode in value as they offer up different ways to treat the disease. We’re already seeing that play out with MRNA stock and GILD stock.
Both Moderna Inc and Gilead Sciences, Inc. offer a glimpse of the huge gains that await investors if they pick the right pharma stock. And the answer to which one will emerge the winner could be just around the corner.