GOLDMAN SACHS: Buy these 13 unloved vaccine stocks that have the potential to spike on positive treatment updates

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  • As important as a novel coronavirus vaccine and COVID-19 treatments are, Vishal Vivek of Goldman Sachs says stock prices and options interest the companies making them are lagging. 
  • That could be a big source of opportunity as the drug developers are expected to report results of a large number of studies in late 2020.
  • Vivek created a list of 13 vaccine and COVID drug stocks that are underperforming, have cheap options prices, and could change their situations with clinical data.
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There’s been a historic flood of research and testing in the hunt for a coronavirus vaccine and better treatments for COVID-19 — but it seems like Wall Street has forgotten about it.

Goldman Sachs equity-derivatives associate Vishal Vivek says that not only are some of the companies working on vaccines and drugs underperforming, their prices on the options market have declined, which makes them attractive in the right situation.

“Our analysis shows notional open interest in the top 13 vaccine/treatment stocks has declined in recent weeks, and is near a 3-month low, even as the average stock has underperformed the S&P 500 by 17% over this period,” Vivek wrote in a note to clients.

That might change soon. On Thursday a Food and Drug Administration panel of vaccine experts met for the first time and began discussions of what it will take to approve any vaccine. And between now and the end of 2020, a lot of companies will disclose important data from studies of their drugs. 

The companies that report successful studies and good data could be poised for a rebound, and the decline in options prices makes it a cheap bet, Vivek says. This chart shows how far the interest in vaccine stocks, in blue, and in “re-opening sensitive stocks,” in gray, has fallen since this summer.

Goldman Sachs strategist Vishal Vivek says stock prices and interest in vaccine-linked stocks have dropped in recent months.
Goldman Sachs Global Investment Research and OptionMetrics

Based on both stock and options prices, Vivek says most of the leading companies in this field look like tempting opportunities around which to position for upside.

To review where things stand: On Thursday, the FDA approved Gilead Sciences’ drug Veklury, or remdesivir, as the first treatment for COVID-19.

Coronavirus vaccines from Moderna, Pfizer and BioNTech, AstraZeneca, and Johnson & Johnson are in late stage-testing and Novavax has one in mid-stage testing. Johnson & Johnson’s study has been paused because after a patient suffered an illness. AstraZeneca just received permission to restart a trial that had been stopped for similar reasons.

Meanwhile Amgen, Regeneron, and AbbVie are working on potential COVID-19 therapeutics, or treatments that could make the illness less severe after infection, and Gilead and Eli Lilly, are studying combinations of Veklury with other drugs.

In each case, Vivek’s recommended strategy involves buying a long option. That’s a bet the stock’s price will increase, which makes it directionally equivalent to buying the stock.