Coronavirus Stock Reckoning
For all the harm that COVID-19 has wrought around the world, both in terms of the loss of lives and the economic devastation that followed, there has been one beneficiary of the current economic conditions: pharma stocks. Namely, pharma companies that have been looking into a COVID-19 cure, a group I have come to deem to be at the forefront of a new class of securities: coronavirus stocks.
The thing about coronavirus stocks, or at least the ones looking to directly profit from a vaccine, is that there is a lot of competition in this space (and rightfully so, we’re all eager to put COVID-19 behind us). With that being said, the coronavirus stocks in this space have always been volatile, but with a potential vaccine release date approaching, which companies will emerge on top?
Now, some framing and contextualization is in order here.
First, this isn’t necessarily a feast-or-famine situation. By that I mean that there could be multiple winners in the vaccine race. For instance, there could be room for multiple variants of the COVID-19 vaccine.
But you can rest assured that the first mover in this area is going to see huge gains. So, picking the company that is going to be first out the gate with a vaccine is the best way to maximize profits on your portfolio…but it’s not the only way.
Should the first vaccine prove to be ineffectual or have harmful side effects, or should politics get in the way (like if China develops a vaccine, but the U.S. wants to use a homegrown cure), there are a number of ways that a market could open up for a second type of vaccine.
And if supply becomes an issue (after all, few items have been as globally anticipated as a COVID-19 vaccine), then we could also see several vaccine variants become successful.
There’s even a possibility that the second or third pharma stock with a vaccine may be the best option.
If, say, the first vaccine is released and receives enormous media attention (which translates into hype on the stock market, which will translate in turn into a rapidly inflating share price), just one hiccup in distribution or effectiveness could radically curb the enormous gains the company accrued. This could happen overnight.
See Eastman Kodak Company (NYSE:KODK) for a perfect case of hype generating massive amounts of share price gain only for a lot of that growth to be given back in a relatively short period of time.
Beware this magnitude of excitement and hype: it almost only ever results in disappointment for investors, except for those who can get in very early on.
So, we have a lot of volatility and possible market fluctuations in this sector. A warning, then: if you’re an investor who would rather go in long-term on a company and rest easy at night knowing your investment is largely secure, look elsewhere. This is the land of 1,000% gain-potential. But that possibility for reward carries with it a high degree of risk.
All that said, we’re going to examine the two top pharma stocks looking to manufacture a vaccine and what might be the best strategy for playing the market moving forward.
Pharma Stocks in 2020: MRNA and REGN
My top coronavirus stocks in the pharma space have, for a while now, been Moderna Inc (NASDAQ:MRNA) and Regeneron Pharmaceuticals Inc (NASDAQ:REGN).
Both are up big in 2020; just look at the chart below.
Chart courtesy of StockCharts.com
REGN stock appeared on my radar in July when the company entered late-stage clinical trials to assess the effectiveness of its antibody cocktail in preventing and treating the virus. The research, run jointly with the National Institute of Allergy and Infectious Diseases (NIAID), involves testing the treatment’s ability to prevent infection in those who have had close exposure to a COVID-19 patient. (Source: “Regeneron Begins COVID-19 Antibody Cocktail Late-Stage Trial, Shares Rise,” Reuters, July 6, 2020.)
Moderna Inc, meanwhile, has been the top coronavirus stock due to its proximity to government; the U.S. federal government tendered a $483.0-million loan in an attempt to help develop said vaccine—and it has even begun working with Moderna in-house to develop it. (Source: “Moderna Soars After $483 Million Covid-19 Agreement With U.S.,” Bloomberg, April 16, 2020.)
Now, this relationship with the government hasn’t always been rosy. U.S. health officials and Moderna Inc’s team have clashed several times over the handling of the work on the vaccine.
But that hasn’t been too big of a problem for Moderna stock. MRNA stock had yet another spike in July when the company revealed that it had completed enrollment for a phase 2 trial of the COVID-19 vaccine. (Source: “Coronavirus Vaccine Progress: Moderna Partners for Manufacturing Deal, More Trials to Start Soon,” Boston Herald, July 11, 2020.)
Moderna Inc’s next step involves a phase 3 study based on feedback from the U.S. Food and Drug Administration (FDA). This phase, which was expected to include 30,000 participants, is likely already underway.
What’s more, Moderna has partnered with European pharmaceutical company Laboratorios Farmaceuticos ROVI SA (BME:ROVI), which will provide vial-filling and packaging capacity for the vaccine at a facility in Madrid, Spain. (Source: Ibid.)
There are, of course, the haters and doubters who believe that MRNA stock is bound to sink. The stock has accumulated a massive amount of short positions since it began seeing exponential gains.
So far, this thinking hasn’t paid off; short-sellers of Moderna stock have lost about $1.5 billion in 2020. (Source: “Moderna’s 370% rally has cost short sellers US$1.5 billion in 2020,” BNN Bloomberg, July 17, 2020.)
So, things have gone well for MRNA stock investors. Very well.
In fact, since I first wrote about the company about six months ago, shares of Moderna stock have climbed 260%.
So, I have a good track record when it comes to predicting how Moderna stock will fare in the broader coronavirus stock market.
But that brings us to the next point: for investors who were able to gobble up some MRNA stock in February and March, now may be the safest time to get out and count their winnings.
Understand that I’m not saying that Moderna stock is headed down, only that there is more volatility on the market now than ever. The hype that propelled the company’s meteoric rise is beginning to wear thin. Investors are an impatient lot and they’re going to want to see results sooner rather than later. This doesn’t necessarily mean a vaccine coming to market, but it does mean some good news (like successful trials) to keep them satiated.
Those investors who want that potential for massive gain, even if it comes with equally massive risk, are happy to stick with MENA stock.
Pharma stocks by their nature are usually volatile, relying as they do on huge amounts of research and development for uncertain results. Under the microscope of the COVID-19 vaccine race, however, we’re only seeing that volatility magnified to an umpteenth degree.
What that means is that this is a market with a huge potential to make a lot of investors very rich. Like I said before, there is no reason to believe that the company that is the first out the gate with a COVID-19 vaccine couldn’t end up surging by thousands of points.
But companies like Moderna Inc and Regeneron Pharmaceuticals Inc, which both have already benefited greatly from the hype surrounding coronavirus research, are the most at risk for a debilitating correction should their efforts prove in vain.
Still, this is the single greatest opportunity for massive gains on the market today, maybe even in our lifetime. But it’s also going to be a big risk for investors, so investors need to go in with their eyes open to that.