Leaping to Invest in Covid-19 Vaccine Producers? Picking Winners is Far More Complicated than Their Press Releases

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by Erik Sherman

When Pfizer announced a 90%-effective Covid-19 vaccine on Nov. 9, Wall Street jumped for joy, elevating the worthy and punishing the unfortunate. But don’t place too much faith in this early on.

Who might win or lose is an unanswered question. Bets on how such broad events as pandemics, joblessness, or war affect entire stocks—or business strategies—can be dangerous.

The Pandemic Effect

The continuing Covid-19 outbreak, and accompanying shutdowns and isolations, have had significant impacts on many companies. That’s not surprising given the overall health impact.

American Airlines stock lost has more than 60% of its value this year, according to data from S&P CapitalIQ. Cruise operator Carnival Corporation & plc has been off by 68.4%. Wynn Resorts lost 34%.

But Zoom Video Communications, seemingly ubiquitous in video meetings, is up 507.5%. Amazon gained 69.8%. Virtual healthcare provider Teladoc Health is up 118.1% since the beginning of the year. Biotech firm Moderna, also involved in vaccine development, gained 321.5%.

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Before its good news, Pfizer had been down as much as 30% back in March and saw continued large swings through the year before regaining 98% of its early January value.

Overall, interest in some sector stocks, like healthcare and tech, jumped with the outbreak. But waves of investor interest aren’t identical to business fundamentals.

Pumping Up a Bubble

“I think what we’re looking at here is a bit of a bubble developing,” said Andrea Cicione, head of strategy at economic research provider TS Lombard. Pharma, biotech, healthcare providers and services, healthcare equipment and supplies, life sciences, healthcare technology, and online retail have all seen boosts.

“Covid basically triggered the mania phase [of a bubble],” Cicione added. “It’s the public, not institutional investors, that get involved. A lot of the boost in valuations have been justified by Covid.”

The public being retail investors, as the trade calls regular individuals trading shares. A sudden rush of people jumping on or off some perceived trend can temporarily affect share prices, though this doesn’t typically become a long-term influence.

Vaccine Ups and Downs

The pins that, in theory, could prick the bubble are effective vaccines and treatments. When people can go back to work, shopping, on vacations, to entertainment, and socializing, the economy should move back more toward normal, with customer demand generating jobs again.

Pfizer shares jumped 7.7% on the Monday it announced the vaccine results. And yet the impact was only 1.3% a day later. Moderna, while not as far along as its rival, was up 5% the day after Pfizer’s announcement.

Home fitness company Peloton, which benefited from stay-at-home orders, dropped 20.3% on Monday but then climbed back 5.2% on Tuesday. Zoom kept falling and was off by almost 25% on Tuesday.

Some investors who shorted companies in the face of the pandemic won or lost big. Ortex Analytics pulled together the biggest collective losses and gains on short selling from November 1 through 9.

If a vaccine allowed the country to soon return to normal economic activity, short sellers might be expected to get hurt as prospects improved for adversely affected companies. People shorting such companies as Zoom and Peloton—as well as Amazon and Netflix, which benefited from lockdowns—saw a profit with an assumption of greater activity inside U.S. homes.

Other companies felt the pain of a crash in travel and tourism, including American Airlines, Royal Caribbean, Carnival, Wynn Resorts, and Walt Disney with its theme parks. They rebounded as Americans dared to recall more normal times. Losses for short positions followed.

Avoiding Distraction

The biggest danger to planning around the vagaries of diseases and treatments is ignoring other significant factors in play.

“A number of these stocks have done well not just because of Covid-19, but because their fundamentals and valuations pre-pandemic suggested all they needed was a catalyst for significant upside,” said Robert Spivey, director of research at financial analysis firm Valens Research. “These names were well positioned … and Covid just happened to propel them faster.”

Not all, though. Zoom has been around for nine years. There don’t seem to have been many other factors that would drive the growth it’s seen, other than broader use when in-person meetings became a public-health impossibility.

And then there’s monetary policy: Negligible interest rates for savers are driving more of them into the markets.

“We’ve had unprecedented stimulus,” explained Rick Myers, president of Integrated Financial Services of Grand Rapids, Michigan. “That has in large part kept people from panicking. Another thing [the Fed has done] is reduce interest rates next to zero. Here in Grand Rapids, Michigan, Fifth Third bank is offering 0.1%. By comparison, the markets are the only game in town. If the interest rates were higher, there would be less speculation.”

No One Knows the Winners

The final complication is how governments and other institutions make purchasing decisions and fund medical research.

Many investors previously have reacted too quickly to thin information. “To start a new [vaccine or treatment] trial is easy,” said Dr. Noam Tao, a medical safety and quality researcher at Israel’s Shebah Medical Center. “You register it and need the ethics committee in your hospital to approve it. It’s easy to call [the press] and give them a medical snippet and, lo and behold, people pressure the FDA to approve.”

There have been nearly 200 vaccine candidates, Tao said, and 11 have been in phase 3 trials. A single winner is unlikely.

If the coronavirus mutates significantly enough, new vaccine variations may be needed every year. As case counts again surge and some states revisit business restrictions, there could also be another wave of unforeseeable economic impacts on businesses, their strategies and their results.

“No one company will be able to produce enough vaccines. And if one has side effects, others may not,” Tao said.

In other words, expect more volatility and uncertainty and far fewer easy decisions.