COVID-19 has created some spectacular winners among vaccine stocks, but is this rally slated to last? It is too late to start investing in vaccine stocks, and what happens when we finally get COVID-19 under control?
The fight against COVID-19 has pushed Moderna, Pfizer-BioNTech, Astrazeneca and other pharmaceutical companies to the forefront of public consciousness. You may be wondering if you should add stocks and shares of these entities – loosely termed vaccine stocks – into your investment portfolio.
Afterall, their vaccines are enjoying widespread adoption around the world, driving up stocks in some cases to dizzying heights. Take, for example, Moderna which enjoyed a massive pump of around 500% from Dec 2020 to Sep 2021.
But is it too late now to jump in? After all, inoculation rates worldwide are rising day by day, and the surge of demand may very well already be in decline.
Not to be all super-villainy about it, but the Omicron variant may give you reason to smile. This is because additional booster shots seem to be the strategy for dealing with the new variant. This means the production and sale of vaccines will be required to continue for a little while longer.
So should you bite the bullet this time round? What do you need to know before putting your hard earned money into vaccine stocks? And how do you protect yourself against downsides?
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Understanding the vaccine stocks investing landscape
Let’s start by first examining the vaccine stocks investing landscape. Generally speaking, there are two main entities to consider investing in.
Vaccine and drug manufacturers
The first and obvious group are the entities at the centre of it all: the vaccine and drug manufacturers, which you probably are already familiar with.
Vaccines remain the gold standard for combating the COVID-19 pandemic, and will likely see continued demand in the short to medium term (as discussed above).
However, drugmakers are also pursuing other medications such as oral pills, which are meant to act as an easy to use therapy for patients with less severe COVID-19 symptoms.
The implications of such a drug are enormous. Here’s why: COVID-19 can turn from mild to serious within a short span of time, making it necessary to admit those with a certain level of symptom into medical facilities for observation, and if necessary, intervention.
This elevated level of admissions creates a strain on a territory’s medical resources, which if overwhelmed, can create negative ripple effects for the wider population.
As such, having a medication that can be self-administered at home to prevent mild COVID-19 from turning severe will help lower the strain on medical services and hospitals.
This could also influence policies to become less restrictive and brighten up economic outlooks, if the pill renders COVID-19 an easily treatable ailment in the eyes of the public.
Merck and Pfizer have already designed two new COVID-19 pills, which are now awaiting approval for general use. US-Swiss pharma giant Novartis has also announced plans to join the fray, and more pharmaceutical companies are expected to follow.
Supply chain players
Another less obvious group of companies that may also provide great returns are the supply chain players that provide crucial support services and products to the drugmakers.
Creating vaccines and medicines is an incredibly complex process, and requires input from related businesses. For example, a lack of glass vials for packaging the vaccines can throw a spanner in the works, preventing distribution.
We’re not going into the finer points of the workings of the pharmaceutical supply chain here, but suffice it to say it might be worthwhile to cast your sights beyond the usual suspects.
Have a look at corporations that are plugged into or associated with the supply chain in one way or another, and you might find some gems.
Okay, say we beat COVID-19. Then what?
Now, let’s get to the heart of the question of whether you should invest in vaccine stocks.
While COVID-19 has helped some pharmaceutical companies to become investor darlings, the pandemic is going to be brought under control sooner or later, and life will go on.
What happens to, say, Moderna then? With sales of its COVID-19 vaccines drying up, will its share price also take a dive? If that happens, then there’s no point investing now, right?
Well, that depends on what the companies actually do with their inventions.
Turns out, the vaccines that have proven to be the most effective against COVID-19 are of a new class called mRNA vaccines (not to be confused with the mRNA vaccines conspiracy theorists insist are microchips for human tagging).
And the exciting thing is, mRNA vaccines have many potential uses beyond preventing COVID-19 illness. They can also be tweaked to combat a whole host of other serious diseases.
A Bloomberg report notes that mRNA vaccines could be useful in fighting Zika, multiple respiratory viruses, melanoma, HIV, Epstein-Barr and malaria, while also acting as a better influenza vaccine.
You could say there is enormous potential here, and you’d still be putting it mildly. At the very least, vaccine stocks would be interesting to watch for the foreseeable future.
A measured approach is best
So far, the outlook seems pretty optimistic. Does that mean it’s okay for you to go ahead and jump in?
We’re not financial advisors, so we can’t tell you what to do. What we do suggest, however, is to hedge your bets by ensuring that you maintain a healthy level of diversification in your investment portfolio.
And if you’ve been dabbling in investing for any length of time, you’d know that one of the best ways to diversify your risks is to invest in an exchange-traded fund (ETF), instead of buying stocks of individual companies.
So if you’re looking to invest in pandemic and vaccine stocks, be sure to look up some pharmaceutical ETFs. You’ll also want to explore ETFs that have a broader medical focus, such as healthcare or biotech.
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By Alevin Chan
An ex-Financial Planner with a curiosity about what makes people tick, Alevin’s mission is to help readers understand the psychology of money. He’s also on an ongoing quest to optimise happiness and enjoyment in his life.